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In a nutshell, small firms destroy proportionally more jobs than large firms during recessions and create proportionally more jobs during booms. This result is opposite to recent empirical evidence for developed countries Moscarini and Postel-Vinay The challenge is to uncover the factors that determine the different firm size employment growth dynamics in developing countries as opposed to developed ones.

The current evidence indicates that the poaching mechanism plays a role at dampening employment losses in small firms during downturns and curbing their employment growth in expansions in developed and developing countries alike. Nevertheless, the credit constraint channel seems to be more potent in developing countries, and that leads to the empirical regularity that small businesses are more sensitive to business cycles in these countries. Given the findings above, policies designed to dampen employment shocks and protect employment during recessions should aim at easing the financial constraints to small businesses in Brazil.

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Looking ahead, it is also paramount that further evidence about the firm size dynamic is generated in developing countries to minimize economic and social costs of job losses during recessions. Other factors such as age, wage and productivity of the firms will also be analysed together with employment size to further our understanding on the cyclical behaviour of firms. Cravo, T.

Are small employers more cyclically sensitive? Gertler, M. Gilchrist Moscarini, G. Postel-Vinay Blog Job Creation and the Business Cycle in Brazil What type of business destroys proportionately more jobs during times of economic recessions and hires more in booms? The case of Brazil The small business sector is responsible for a substantial share of economic activity and employment generation in developing countries.

Causes of Business Cycles

Figure 1: Differential net job flows and cycles, Brazil Source: Authors' elaboration based on data from the Ministry of Labour and Employment of Brazil. Why is there so little industry in Africa? Services, by contrast, tend to be the least volatile part of the economy, with nondurable goods such as clothes and groceries somewhere in the middle.

Nondurable goods became only modestly less volatile than they had been before The dramatic smoothing of the jagged line that appears when you graph all of GDP together mirrors what happened in only a single sector: durable goods.

It was something that happened in that one particular part of manufacturing. Another way to look at the GDP graph is to think of fluctuations over different lengths of time. To take a simple case, economic output is much greater in the daytime than at night, and greater during the week than on the weekend. If you chart them on a graph, these fluctuations will look much bigger than the difference between a recession and a boom. Since World War II, the average business cycle, from peak to peak, has lasted more than six years.

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The Role of Policymakers in Business Cycle Fluctuations: Frontmatter

It was in the high-frequency fluctuations, which got dramatically less severe after This fits the result that Davis and Kahn found when they looked at durable-goods makers. Improvements in business operations had eliminated many short-term ups and downs. In , the Fed aggressively cut interest rates, driving them down much lower than its policies since the mids would have predicted. The goal was to stave off recession and avoid the kind of deflation that Japan had experienced in the s.

The Role of Policymakers in Business Cycle Fluctuations

But the cuts backfired. Those excessively low rates set off a housing bubble and all the consequences that flowed from it.

The peak of the boom, Stanford economist John B. Taylor estimates, saw about , more new housing starts a year than there would have been if the Fed had followed its old practices.

Similar patterns of low interest rates and housing bubbles also occurred in many European countries. To make matters worse, Taylor argues, once the financial crisis began in August , policy makers and many Wall Street traders misdiagnosed the problem as a shortage of liquidity—something the Fed could address by making it easier for banks to borrow from the government. To compensate for this risk, banks charged each other much higher interest rates. That prescription is more painful, and much less politically palatable, than slashing interest rates or ramping up federal spending. But the need for restructuring is what makes serious financial crises different from ordinary recessions—and why the recessions those crises set off tend to last an especially long time.

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Rogoff , who with Carmen M. Reinhart of the University of Maryland has analyzed years of banking crises. Good policy may limit the pain. But, as the unknown story of the Great Moderation itself suggests, even the best policy can go only so far. As discomfiting as it is to both market optimists and policy activists, a certain amount of instability is inherent to the economy.

business cycles, economy, expansion, contraction