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A Nonlinear Model of the Business Cycle

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  • Potter Simon M.

    (Federal Reserve Bank of New York)

Abstract

There is now a great deal of empirical evidence that business cycle fluctuations contain asymmetries. I focus on a theoretical model intended to capture the nonlinear behavior of aggregate output following a large negative shock. Nonlinearity introduced by Bayesian updating and an information externality produces an economy in which the response to large negative shocks is an increase in future output. The expansionary effect is produced by the negative shock imparting information about what not to do.

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Bibliographic Info

Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 4 (2000)
Issue (Month): 2 (July)
Pages: 1-11

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Handle: RePEc:bpj:sndecm:v:4:y:2000:i:2:n:3

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  1. Pesaran, M. Hashem & Potter, Simon M., 1997. "A floor and ceiling model of US output," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 21(4-5), pages 661-695, May.
  2. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
  3. Francis X. Diebold & Glenn D. Rudebusch, 1991. "Have postwar economic fluctuations been stabilized?," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 116, Board of Governors of the Federal Reserve System (U.S.).
  4. Benjamin M. Friedman & Kenneth N. Kuttner, 1994. "Indicator Properties of the Paper-Bill Spread: Lessons from Recent Experiences," NBER Working Papers 4969, National Bureau of Economic Research, Inc.
  5. Potter, Simon M, 1995. "A Nonlinear Approach to US GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 10(2), pages 109-25, April-Jun.
  6. Benjamin M. Friedman & Kenneth N. Kuttner, 1991. "Why does the paper-bill spread predict real economic activity?," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 91-16, Federal Reserve Bank of Chicago.
  7. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, American Finance Association, vol. 46(2), pages 555-76, June.
  8. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, Elsevier, vol. 88(2), pages 251-281, November.
  9. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2004. "Measuring the effects of monetary policy: a factor-augmented vector autoregressive (FAVAR) approach," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-03, Board of Governors of the Federal Reserve System (U.S.).
  10. Romer, Christina D., 1994. "Remeasuring Business Cycles," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 54(03), pages 573-609, September.
  11. Edward E. Leamer, 2001. "The Life Cycle of US Economic Expansions," NBER Working Papers 8192, National Bureau of Economic Research, Inc.
  12. Mark Gertler & Cara S. Lown, 2000. "The Information in the High Yield Bond Spread for the Business Cycle: Evidence and Some Implications," NBER Working Papers 7549, National Bureau of Economic Research, Inc.
  13. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2000. "How stable is the predictive power of the yield curve? evidence from Germany and the United States," Staff Reports, Federal Reserve Bank of New York 113, Federal Reserve Bank of New York.
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Cited by:
  1. Ryo Horii & Yoshiyasu Ono, 2004. "Learning, Liquidity Preference, and Business Cycle," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0601, Institute of Social and Economic Research, Osaka University.
  2. Ryo Horii & Yoshiyasu Ono, 2006. "Learning, Inflation Cycles, and Depression," Discussion Papers in Economics and Business 06-14, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  3. Ryo Horii & Yoshiyasu Ono, 2005. "Financial Crisis and Recovery: Learning-based Liquidity Preference Fluctuations," Macroeconomics, EconWPA 0504016, EconWPA.

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