Trend and Cycle in the 1990s: Australia's Current Expansion

It is a pleasure to be at this conference on business cycles organised by the Melbourne Institute, which has a well-deserved reputation as a centre of expertise on business-cycle research in Australia. Business cycles have always been with us. They pre-date the rise of attempts at active stabilisation policies in the second half of the twentieth century. They persisted through the heyday of attempts at ‘fine-tuning’, and they will, I am prepared to assert, persist in the era of the ‘new economy’, whatever that term may mean. So there is much to be said for studying the processes that initiate and propagate business cycles. Those involved in making macroeconomic policy decisions, and in providing advice to them, need a keen awareness of the history of the business cycle, and of the lessons to be drawn from that history. The Melbourne Institute makes an important contribution to this. I want today to cover a few issues whose common thread is the business cycle. First, I will talk a little about the evolution of the current business cycle upswing, which is now the longest since the 1960s, and the strength of which has been unexpected in the past two years or so. Why was that, given the Asian crisis and the ensuing global growth slowdown? Second, I want to ask what is different about this cycle compared with others, and how that might be a factor in the expansion’s future evolution.