Blanchard, O. and D. Quah, 1989, “The Dynamic Effects of Aggregate Demand and Supply Disturbances,” The American Economic Review, 79, pp. 655–73.
Cogley, T. and J. Nason, 1995, “Effects of the Hodrick-Prescott Filter on Trend and Difference Stationary Time Series: Implications for Business Cycles,” Journal of Economic Dynamics and Control 19, pp. 235–278.
Harding, D. and A. Pagan, 2002, “Dissecting the Cycle: A Methodological Investigation,” Journal of Monetary Economics, Vol. 49, pp. 365–81.
Hodrick, R. J. and E.C. Prescott, 1997, “Post-War U.S. Business Cycles: An Empirical Investigation,” Journal of Money, Credit, and Banking, Vol. 29, pp. 1–16.
Kim, C-J. and C. R. Nelson (1999). “Friedman’s Plucking Model of Business Fluctuations: Tests and Estimates of Permanent and Transitory Components,” Journal of Money, Credit, and Banking, pp. 1–22.
King, R. G., and S. T. Rebelo, 1993, “Low Frequency Filtering and Real Business Cycles,” Journal of Monetary Economics, Vol. 33, pp. 405–38.
Nadal De Simone, F., 2002, “Common and Idiosyncratic Components in Real Output: Further International Evidence,” IMF Working Paper 02/229.
Neftcy, S. N. (1984). “Are Economic Time Series Asymmetric over the Business Cycle?,” Journal of Political Economy 92, pp. 307–28.
Ramsey, J. and P. Rothman (1996). “Time Irreversibility and Business Cycle Asymmetry,” Journal of Money, Credit, and Banking 28, pp.1–21.
Razzak, W. A. (2001). “Business Cycles Asymmetries: International Evidence,” Review of Economic Dynamics 4, pp. 230–43.
See IMF Staff Country Reports No. 02/118, Box1.
Prepared by Francisco Nadal De Simone.
This is the case according to the (most reliable) ESA 95 data. The ESA 79 data series stretches from 1995 back to 1960 and, in some charts, has been spliced with the ESA 95 for 1996–2002. ESA 79 data show low growth rates for a few years in the 1990s but not for three years in a row, as is the case currently.
Consistent employment data back to the 1960s has not been available and thus productivity is analyzed only with the ESA 95 data series.
Average labor productivity growth was 1.4 percent during the period 1993–2002 while trend growth in labor productivity was 1.7 percent.
According to this LBD model in the Schumpeterian tradition, growth depends on the mix of research and development (R&D) and LBD. LBD improves the quality of products, and this is fully internalized by the firm because only the firm that solves practical production problems benefits from the experience. As in other Schumpeterian models, an increase in the real interest rate reduces growth via a reduction of R&D. Similarly, growth falls if the rate of entry of new firms or products declines. The real interest rate, however, has not trended up.
Another reason is the need to import skills that are unavailable locally.
Notice that congestion is a potential concern with respect to employment growth but the example of the large metropolitan areas in the world and of other, small open economies suggests that Luxembourg is still far away from hitting any major, natural long-term constraints.
Possibly due to the lack of full synchronization among the cycle phases of euro-area countries, the duration of the euro-area real GDP growth cycle is much longer than the duration of the Luxembourg real GDP growth cycle. Nadal-De Simone (2002) contains a description of business cycle characteristics of real GDP both in levels and in growth rates for France, Germany, Italy, and the United States. The duration of those countries’ cycles is about 3 years.
See also Jaeger and Schuknecht (2003) and Bernanke, Gertler, and Gilchrist (1999) for similar results. Here, the average cycle length for average real asset prices growth in Belgium, France and Germany (referred to as BEDEFR on Table 1) is 10 years; it is about 9.5 years if the UK and the US real asset prices are included (referred to as “World”). Notice that the index combines three different asset classes, equities, residential property, and commercial property, weighed using the shares of each component in private sector wealth; the private consumption deflator is used to convert nominal to real price indices. Data were kindly provided by Jaeger. Results on real asset prices in levels (not shown) are similar to those for asset prices in growth rates.
The considerable asymmetry in cycles in real economic activity is a well-known result in the literature. The literature on output asymmetry is vast and can be traced back to early references in Keynes (1936). More recent work includes the seminal piece by Neftcy (1984), as well as Seichel (1993), Ramsey and Rothman (1996), and Razzak (2001).
Cycle phases of real value added in the financial sector might not exhibit a strong, positive correlation with phases of real asset prices because lending for personal or corporate real estate accounts only for a small proportion of the activity of Luxembourg banks—more than two thirds of their exposure is to other financial institutions.
With cycle phases of Luxembourg real GDP growth or real revenue growth the relation of the phases in the general government balance (in percent of GDP) is positive but insignificant. This might reflect that (particularly capital) expenditure has been expanded in line with GDP, notably to alleviate constraints on growth.
The end of the planning horizon of the current Stability and Growth Program is 2006.