Abstract

Five market economies were investigated in a panel analysis for the proximate determinants of business cycles from 1960 to 2013. The propositions tested cut across most of the relevant schools of thought on the subject. Policy contexts such as monetary, fiscal, trade, technology, and strictly exogenous factors were covered in the analysis. Cycles of policies/factors were generated via two filters and subsequently subjected to causality analysis. Exogenous variables of different varieties were indicated as the drivers of business cycles in the sample. Appropriate resource management should constitute a key aspect of the policy design.

Keywords:Monetary policy, Fiscal policy, Open economy macroeconomy, International business cycles, Technological change

Abbreviations:BP = Baxter-King’s band-pass filter; HP=Business cycle corresponding to Hodrick-Prescott Filter; CPI: Consumer Price Index (2005=100); DY=Domestic Output (GDP); EXDT=External Debt; FIMP=Fiscal Impulse Measured as the ratio of government expenditure to government revenue; FTTDY1=Fitted income series at lag 1; FTTDY4=Fitted Income Series at lag 4; FRIR=Foreign Real Interest Rate computed as the average 6 months deposit rate for USA, UK, Germany, Italy, Netherlands, France, Japan, and Switzerland; FYCUT= Industrial or foreign countries’ output at current prices; GCS=Government Consumption Spending; GEX= Government Expenditure; GIE=Government Investment Expenditure; GREV=Government Revenue; IIO= Index Of Domestic Industrial Output (2005=100); INDT=Internal Debt; INF=Domestic Inflation computed as the logarithmic change in CPI; RIR=Domestic Real Interest Rate; M1=Narrow Money Supply; M2=Broad Money Supply; MB1=Narrow Monetary Base; NFA=Net Foreign Assets; OP = Crude Oil Price; OPS= Openness; PCS=Private Consumption Spending; PIE=Private Investment Expenditure; PSC=Private Sector Credit; RER =Unweighted Multilateral Real Exchange Rate (average of five countries’ RER); TDBC=Trade Balance; and, TOT=Terms of Trade.