Introduction to The Changing Nature of the Business Cycle

Fluctuations in economic activity over the course of the business cycle imply signifi cant welfare costs. Most obvious are the costs associated with periods of relatively weak activity, when productive resources are under-utilised, and consumption is below par.1 Periods of relatively strong activity can also be costly since they imply an ineffi cient bunching of activity, consumption and investment at particular points in time, and are often associated with infl ationary pressures. It is not surprising, therefore, that the nature of the business cycle, including the magnitude of fl uctuations and the degree of synchronisation of cycles across countries is closely studied by academic economists and policy-makers alike.