the OECS countries, although the main result stands – the OECS countries exhibit very volatile business cycles, even compared to developing economies.

We also report the standard deviation of investment (Inv), government expenditures (Gov exp) and private consumption (Cons) relative to the standard deviation of GDP. As is commonly observed in the business cycles literature, investment is the most volatile variable among the expenditure components of GDP, with the relative volatility in the OECS countries equal to 4.6 on average. This number is comparable to that found for other countries. Government expenditures also exhibit higher volatility than GDP in the OECS countries by a factor of 2.55. This is in line with the findings in Male (2010) for developing countries. In contrast, in developed countries the ratio of volatilities of government expenditure and GDP tends to be closer to 1.

We found that the volatility of consumption in the OECS countries is strikingly high, equal to 2.66 times that of GDP volatility. This is quite high compared to both developing countries and developed economies. The highest consumption volatility is observed in Antigua and Barbuda and St. Kitts and Nevis, while the lowest – in Barbados and Grenada. In all OECS countries the relative volatility of consumption to GDP is well above 1.

**<u>Table 2. Volatility of key macroeconomic variables: 1980-2014</u>**

|||**% Standar**<br>|**d deviatio**<br>|**n**<br>|**% Stan**<br>**% Stand**<br>|**dard deviatio**<br>**ard deviation**<br>|**n of x**<br>**of GDP**<br>|
|---|---|---|---|---|---|---|---|
||**GDP**|**TB/GDP**|**TOT**|**Int rate**|**Inv**|**Gov exp**|**Cons**|
|**Antigua and Barbuda**|5.38|6.98|6.76|2.87|3.42|2.64|4.56|
|**Barbados**|3.56|2.31|7.95|2.28|4.82|1.22|1.06|
|**Dominica**|2.49|6.17|4.03|2.90|6.88|3.96|2.82|
|**Grenada**|4.28|4.61|7.24|2.72|4.19|2.36|1.64|
|**St. Kitts and Nevis**|3.55|6.07|4.01|2.20|5.26|3.69|3.87|
|**St. Lucia**|3.63|5.04|6.20|3.23|4.07|1.46|2.50|
|**St. Vincent and the**<br>**Grenadines**|3.11|5.32|6.04|2.63|3.33|2.50|2.17|
|**average**|3.72|5.21|6.03|2.69|4.57|2.55|2.66|

_Notes_ : TOT is terms of trade; TB/GDP is exports minus imports over GDP; Int rate is the real interest rate computed as the lending rate minus inflation rate. _Source_ : World Economic Outlook.

The examination of the cyclical properties of the key variables reveals important insights. Table 3 reports the correlations between GDP and various macroeconomic aggregates. We notice, for example, that investment and private consumption are pro-cyclical, with the average correlations equal to 0.61 and 0.36, respectively. We also find that government expenditures are pro-cyclical with a correlation coefficient of 0.39. This finding confirms earlier results in the literature that developing countries tend to follow pro-cyclical fiscal policies. In addition, we find that interest rates in the OECS countries are countercyclical – another important result that distinguishes the business cycles in developing countries – with the correlations ranging from - 0.55 in St. Lucia to -0.21 in Grenada. Lastly, we show that net exports are countercyclical, in line with the findings for developing economies in other studies.

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