Product Prices and the OECD Cycle

20 Pages Posted: 19 Jul 2000 Last revised: 2 Apr 2001

See all articles by Aart Kraay

Aart Kraay

World Bank - Development Research Group (DECRG)

Jaume Ventura

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2000

Abstract

It is well known that business cycles in OECD countries exhibit a remarkable degree of synchronization. Much less known is that the peak of the OECD cycle is associated with high prices of labour-intensive products and low prices of capital-intensive ones. We document this cyclical behavior of product prices and argue that it offers an important clue as to why business cycles are so synchronized. Positive shocks in one or more countries raise the prices of labour-intensive products and, as a result, the demand for labour throughout the industrialized world. This generates increases in wages, employment and output in all industrial countries. Through this channel, shocks are positively transmitted across countries, creating a force towards the synchronization of business cycles.

Suggested Citation

Kraay, Aart and Ventura, Jaume, Product Prices and the OECD Cycle (July 2000). NBER Working Paper No. w7788. Available at SSRN: https://ssrn.com/abstract=236655

Aart Kraay (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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Washington, DC 20433
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HOME PAGE: http://econ.worldbank.org/staff/akraay

Jaume Ventura

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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