STYLIZED FACTS OF BUSINESS CYCLES IN THE G7 FROM A REAL BUSINESS CYCLES PERSPECTIVE

This paper investigates the basic stylized facts of business cycles in the G7 countries using quarterly data from 1960 to 1989. The methodology used is based on Kydland and Prescott (1990). The evidence suggests that the real business cycles model can account for several major stylized facts for all seven countries. In particular, consumption is procyclical and fluctuates generally less than output; investment is procyclical and fluctuates more than output; net exports are countercyclical; prices are countercyclical; government consumption and money do not have a clear cut pattern. Real business cycles models cannot account for some basic stylized facts of labor dynamics, however, primarily because they cannot account for variations in employment and hours per worker. This and other evidence suggests that labor hoarding might, especially in Europe and Japan, be the main force behind employment dynamics.