The BIS Working Paper No. 1076, "The Shape of Business Cycles: A Cross-Country Analysis of Friedman's Plucking Theory," examines the international applicability of Friedman's theory of business cycles in 12 advanced economies between 1970 and 2021. The study finds that in countries with flexible labor markets, such as Australia, Canada, the United Kingdom, and the United States, unemployment rates typically return to pre-recession levels, consistent with Friedman's theory. However, in other countries, unemployment rates are less cyclical. Output recoveries differ less across countries but more across episodes, with an average of half of the decline in GDP during a recession persisting. In terms of sectors, declines in manufacturing are more persistent than those in services. Overall, the study suggests that Friedman's plucking theory is applicable in countries with flexible labor markets but less so in others.
