The effects of business cycles on growth : time series evidence for the G7-countries using survey-based measures of the business cycle

The paper analyses whether business cycle fluctuations affect long-run growth. This hypothesis is tested using quarterly time series for the G7-countries. A vector-autoregressive model containing total factor productivity and a survey-based direct measure of the business cycle is estimated. In this vector-autoregression, technology and business cycle shocks are identified based on the assumption that productivityimproving measures need some time and, thus, there is no contemporaneous response of productivity to a business cycle innovation. The results suggest that positive business cycles shocks have a small negative impact on long-run productivity. However, the results appear to be not robust against changes in the empirical model.