Chapter 5 The Changing Dynamics of the Global Business Cycle
- International Monetary Fund. Research Dept.
- Published Date:
- April 2007
World growth in recent years has been much more rapid than at any time since the oil price surges of the 1970s. This growth is being shared across countries to an unprecedented degree. Moreover, output volatility in most countries and regions has significantly declined. This chapter analyzes these changes in business cycle characteristics and finds that the increasing stability and the associated increase in the durability of expansions largely reflect sources that are likely to prove persistent. In particular, improvements in the conduct of monetary and fiscal policy, as well as in broader institutional quality, have all reduced output volatility. The prospects for future stability should, however, not be taken for granted. Low average volatility does not mean that the business cycle is dead. The abrupt end to the period of strong and sustained growth in the 1960s and early 1970s provides a useful cautionary lesson about what can happen if policies do not adjust to tackle emerging risks in a timely manner.