Growth-business cycle interaction: A look at the OECD

This paper examines the relationship between long-run growth and business cycles in the Organization for Economic Co-operation and Development (OECD). The model in the paper specifically assumes that the business cycle influences growth through total factor productivity. Using unconditional volatility to measure the business cycle, this paper finds a negative relationship between the business cycle and long-run growth even after controlling for endogeneity. The result is robust to the inclusion of either period or country dummy variables, but not both. Therefore, the result is somewhat fragile. Finally, the assumption of constant returns to scale is consistent with the data.