Capital Goods And Consumer Goods Industries During The Business Cycle

An important feature of business cycles refers to the different behavior of capital goods prices compared to consumer goods prices. During economic expansion, the growing number of investment projects increases the prices of capital goods in a faster pace compared to the increase of consumer goods prices. At the same time, capital goods are more strongly affected by the crisis while consumer goods seem to have a somehow privileged position (major retailers continue to make profits from sales, even in periods of economic contraction). Finally, during recession, prices of capital goods are reduced in a faster pace than prices of consumer goods. In other words, capital goods prices are affected to a greater extent by monetary fluctuations, compared to consumer goods prices. This paper aims to highlight how monetary expansion from 2003-2007 produced distortions in the structure of production of the major economies - the United States and the European Union.