Business Cycles, Economic Crises, and the Poor

This paper examines whether output contractions associated with downturns and crises have an asymmetric effect on poverty. Several potential sources of asymmetry are identified first. A vector auto-regression model (involving the output gap, unemployment, real wages, and the poverty rate) is then used to test whether the initial cyclical position of the economy, and the magnitude of the initial drop in the output gap in a downturn, matter in assessing the impact of output shocks on poverty. Empirical results for Brazil indicate that poverty shows less sensitivity to output shocks when the economy is initially in a downturn.