Business cycle – growth nexus: a review

Abstract

Frequent reversals in business cycles pose the question whether country can achieve macroeconomic stability and/or economic growth by coordinating its economic policies. Thus, what is the role of economic policy within the short/long run in amplifying or dampening shocks? Business cycle – economic growth relationship is rather ambiguous and has, thus, attracted controversy. In this sense the (dis)belief that there indeed exists a relationship between the economic growth and business cycle, and their long-run convergence brings us to three important hypotheses that: (1) the evaluation of cycle-growth bond is inconclusive, (2) empirical testing of cycle synchronization is exaggerated and (3) the hypothesis of coupling/decoupling is ambiguous and can be misleading. Economic growth is a complex process and cannot be attributed to a single factor of observance hence this essay is just a tool of theoretical reasoning with firm grip on empirical circumstances that lead us to consider some issues that dwell the “growth economists” these days. Our study suggests a conclusion that discussions on the cycle-growth nexus are far from over, revealing us some remarkable confrontations within empirical domain.

Keywords:

• business cycle
• growth
• short/long run relationship
• cycle synchronization
• decoupling

JEL Classification:

• F44
• E30
• E32
• E37

Additional information

Notes on contributors

Marinko Škare

Marinko ŠKARE is Professor of Economics, the Editor in Chief of the Economic Research Journal, a member of the Editorial Board of several international journals at the Faculty of Economics and Tourism in Pula, Juraj Dobrila University of Pula. He worked as Assistant Dean for Education, Faculty of Economics and Tourism, Pula; Assistant Dean for International Cooperation, Faculty of Economics and Tourism, Pula, the main and a team researcher in several scientific projects; former Dean of the Faculty of Economics and Tourism, Pula, and former Vice President for International Cooperation, Juraj Dobrila University of Pula. He is a member of the American Economic Association, Royal Economic Society, Economic History Association, Economic History Society, and Association for Comparative Economic Studies. He has published several books and a large number of scientific papers on the subject of economic growth, welfare economics, and poverty, human capital, economics in transition, economic philosophy, and monetary economics.

Daniel Tomić

Daniel TOMIĆ, an Assistant Professor at the Faculty of Economics and Tourism “Dr. Mijo Mirkovic”, Juraj Dobrila University of Pula teaches Macroeconomic management, History of economic thought, Economic philosophy, Microeconomic analysis, Intermediate Microeconomics and International markets and business. His primary area of science interest is macroeconomic management, empirical modelling, international markets and industrial organization. During scientifically taken, relatively short period, Daniel Tomić published numerous scientific and professional papers, two books, chapters in books and symposiums, edited a book and attended many international conferences. In his latest works, Daniel Tomić deals with topics related to terms of trade, international trade and Croatian growth perspectives which lead to a publication of his papers in indexed journals.