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 1960-89. The methodology used is based on Kydland and Prescott (1990). The evidence suggests that the real business cycles model can account for several important 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; and money does not have a clear-cut cyclical pattern. Real business cycles models cannot at present account for some basic stylized facts of labour dynamics, however, primarily because they cannot account for variations in total hours and hours per worker. This and other evidence suggests that labour hoarding might, especially in Europe and Japan, be the main force behind employment dynamics.