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Should Policy Makers Worry about Asymmetries in the Business Cycle?

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  • Boldin Michael D.

    (RFA, Inc.)

Abstract

This paper reconsiders the conventional use of econometric models, especially identified vector autoregressive models, in guiding monetary policy. The main question I explore is whether these models are seriously flawed because they ignore asymmetries in the business cycles. Toward that end, models that allow for asymmetric business cyclesÑdefined by the case where recessions and expansions are not mirror images of each otherÑare estimated. The results suggest that policy makers should worry about asymmetries in business cycles because most econometric models cannot capture empirically important asymmetries. In particular, estimated multiregime models show that the effects of monetary policy are stronger during turning points and outright recessions than in expansions. I conclude that the symmetry/asymmetry question has as much, and maybe even more, practical significance than debates over identification assumptions that have influenced much of the empirical macroeconomic literature over the past 20 years.

Suggested Citation

  • Boldin Michael D., 1999. "Should Policy Makers Worry about Asymmetries in the Business Cycle?," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(4), pages 1-20, January.
    • Handle: RePEc:bpj:sndecm:v:3:y:1999:i:4:n:3
    DOI: 10.2202/1558-3708.1049
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    Citations

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    Cited by:

    1. Belaire-Franch Jorge & Peiro Amado, 2003. "Conditional and Unconditional Asymmetry in U.S. Macroeconomic Time Series," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 7(1), pages 1-19, April.
    2. Veli Yilanci, 2012. "Investigating Asymmetries in Macroeconomic Aggregates of Central and Eastern European Economies," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 14(31), pages 223-229, February.
    3. Lee, Cheng-Feng & Hu, Te-Chung & Li, Ping-Cheng & Tsong, Ching-Chuan, 2013. "Asymmetric behavior of unemployment rates: Evidence from the quantile covariate unit root test," Japan and the World Economy, Elsevier, vol. 28(C), pages 72-84.
    4. Paresh Kumar Narayan & Seema Narayan, 2008. "Examining The Asymmetric Behaviour Of Macroeconomic Aggregates In Asian Economies," Pacific Economic Review, Wiley Blackwell, vol. 13(5), pages 567-574, December.
    5. Zacharias Psaradakis & Martin Sola, 2003. "On detrending and cyclical asymmetry," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(3), pages 271-289.
    6. Narayan, Paresh Kumar & Popp, Stephan, 2009. "Investigating business cycle asymmetry for the G7 countries: Evidence from over a century of data," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 583-591, October.
    7. Charles Ka Yui Leung & Nan-Kuang Chen & Chih-Chiang Hsu, 2004. "Structural Break or Asymmetry? An Empirical Study of the Stock Wealth Effect on Consumption," Econometric Society 2004 Far Eastern Meetings 690, Econometric Society.
    8. Coakley, Jerry & Fuertes, Ana-Maria, 2006. "Testing for sign and amplitude asymmetries using threshold autoregressions," Journal of Economic Dynamics and Control, Elsevier, vol. 30(4), pages 623-654, April.
    9. Arango, Luis E. & Melo, Luis F., 2006. "Expansions and contractions in Brazil, Colombia and Mexico: A view through nonlinear models," Journal of Development Economics, Elsevier, vol. 80(2), pages 501-517, August.
    10. Luis Eduardo Arango & Luis Fernando Melo, 2001. "Expansions and Contractions in Some Latin American Countries: A view Throught Non-Linear Models," Borradores de Economia 186, Banco de la Republica de Colombia.
    11. Zacharias Psaradakis & Marián Vávra, 2015. "A Quantile-based Test for Symmetry of Weakly Dependent Processes," Journal of Time Series Analysis, Wiley Blackwell, vol. 36(4), pages 587-598, July.
    12. Almeida, Pedro Cameira de & Fuinhas, José Alberto & Marques, António Cardoso, 2011. "A assimetria dos ciclos económicos: Evidência internacional usando o teste triples [The asymmetry of business cycles: International evidence using triples test]," MPRA Paper 35208, University Library of Munich, Germany.
    13. Njindan Iyke, Bernard, 2015. "Asymmetries, Structural Breaks, and Nonlinear Persistence: Evidence and Implications for Uncovering the Energy-Growth Nexus in Selected African Countries," MPRA Paper 67163, University Library of Munich, Germany.
    14. Belaire-Franch Jorge & Contreras Dulce, 2003. "An Assessment of International Business Cycle Asymmetries using Clements and Krolzig's Parametric Approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(4), pages 1-11, March.
    15. Tsong, Ching-Chuan & Lee, Cheng-Feng, 2011. "Asymmetric inflation dynamics: Evidence from quantile regression analysis," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 668-680.

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