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Business cycle asymmetry via occasionally binding international borrowing constraints

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  • Li, Shuyun May
  • Dressler, Scott

Abstract

This paper illustrates how occasionally binding credit constraints can be quantitatively important to delivering business-cycle asymmetries. An empirical exercise suggests that countries display some business-cycles asymmetries, and an open-economy real business-cycle model is assessed where an international borrowing constraint binds occasionally. In the model, downward movements with a slack constraint are sharper and quicker than upward movements with a binding constraint, and this can deliver asymmetry over the business cycle. The model is calibrated to Canadian data and suggests that a necessary ingredient for asymmetry is a high initial level of foreign debt.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 1 (March)
Pages: 33-41

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:1:p:33-41

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Business cycle asymmetry Deepness Steepness Small open economy International borrowing constraints;

References

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Citations

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Cited by:
  1. 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.
  2. Piergiorgio Alessandri & Haroon Mumtaz, 2013. "Financial conditions and density forecasts for US Output and inflation," Joint Research Papers 4, Centre for Central Banking Studies, Bank of England.

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