This paper computes the facts on macroeconomic variables and investigates the implications of those facts for stabilization policy interventions for Lesotho. The Hodrick-Prescott (HP) filter is used to separate the trend and cyclical components of Lesotho macroeconomic variables, grouped into expenditure components—monetary variables, external variables and labor market variables. Cyclical components of each variable are used to compute moments such as standard deviation, first order auto-correlation coefficient and the cross-correlations of each cyclical series with the output cycle, upto four leads and four lags. An analysis of these facts and their implications for stabilization policy interventions is confined to high association cycles only, that is, the variables whose cycles are strongly correlated with the output cycle. Causality between each of these high association cycles and output reveal unidirectional causality from investment, exchange rate and employment to output, while, for the rest, no causality exists. Stabilization policy implications include stimulating investment, efforts towards employment generation and hedging against unfavorable exchange rate fluctuations.

The work of Kydland and Prescott (1990), on computing empirical business cycle facts has set a precedence that has been followed into mid 2000s. Many studies that follow the pattern set out by the authors can be found in the literature. Some of these studies use country-specific samples, some others use cross country samples, while some are surveys. Single country business cycles facts have been documented for Australia (Fisher et al., 1996); Sweden (Barot, 2002); the UK (Blackburn and Ravn, 1992); Turkey (Alper, 1998) for example. Cross country facts have been documented for USA and Argentina (Ahumada and Garegani, 2000); European Union and USA (Wynne and Koo, 2000), the Mediterranean region (Gallegati and Polasek, 2004); the G7 countries plus Spain and Switzerland (Perez, 2001); and the developing countries (Agenor et al., 2000). International surveys of business cycles facts have also been carried out by Backus and Kehoe (1992) and Bergman et al. (1998).

Macroeconomic Fluctuations and Stabilization Policy Implications for Lesotho, macroeconomic variables, stabilization policy interventions, monetary variables, external variables and labor market variables, business cycles, International surveys, developing countries, Mediterranean region, standard deviations.