Characterization of the Economic Cycle in Ecuador 1965-2020

Abstract

A characterization of Ecuador's economic cycle is carried out in this paper, using different methods of trend-cycle decomposition for the most relevant macroeconomic aggregates of the economy. The data used has an annual frequency for the period 1965-2020, and contains the analysis of the main productive sectors, components of aggregate demand and factor market of the Ecuadorian economy. The results obtained are in full agreement with the theoretical assumptions, including the following. First, the cyclical component of both the GDP of the primary sector and the oil sector show high volatility, which causes cyclical fluctuations in Ecuador to be significant. Second, the volatility of consumption is higher than that of GDP, which is evidence of deviations from the life-cycle hypothesis. Third, public spending shows a very high relative variability, as well as a procyclical and coincident compartment with economic activity. It is therefore an automatic mechanism, whereby public spending increases when public revenues are higher and decreases when public revenues fall. Finally, employment is less volatile than economic activity, which results in a procyclical behavior of labor productivity.