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International Evidence on Friedman's Theory of the Business Cycle

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  • Goodwin, Thomas H
  • Sweeney, Richard J

Abstract

Milton Friedman's theory of the business cycle implies two empirical regularities tested for here. One regularity i s that business cycles are asymmetric: the size of a contraction affec ts the size of the following expansion but not vice versa. The second regularity is that a supply-side ceiling to aggregate output limits the size of expansions. Friedman's correlation methods yield only very w eak support for the asymmetry hypothesis when applied to real GNP data o f eight OECD countries. A time-series model with a ceiling component f its the data well for a majority of the countries. Copyright 1993 by Oxford University Press.

Suggested Citation

  • Goodwin, Thomas H & Sweeney, Richard J, 1993. "International Evidence on Friedman's Theory of the Business Cycle," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 178-193, April.
    • Handle: RePEc:oup:ecinqu:v:31:y:1993:i:2:p:178-93
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    Citations

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    Cited by:

    1. Randal J. Verbrugge, 1998. "A cross-country investigation of macroeconomic asymmetries," Macroeconomics 9809017, University Library of Munich, Germany, revised 30 Sep 1998.
    2. Nadal De Simone, Francisco & Clarke, Sean, 2007. "Asymmetry in business fluctuations: International evidence on Friedman's plucking model," Journal of International Money and Finance, Elsevier, vol. 26(1), pages 64-85, February.
    3. Tinsley, P A & Krieger, Reva, 1997. "Asymmetric Adjustments of Price and Output," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 631-652, July.
    4. Hess, Gregory D. & Iwata, Shigeru, 1997. "Asymmetric persistence in GDP? A deeper look at depth," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 535-554, December.
    5. Chang-Jin Kim & Chris Murray, 1999. "Permanent and Transitory Nature of Recessions," Discussion Papers in Economics at the University of Washington 0041, Department of Economics at the University of Washington.
    6. Rodriguez Gabriel, 2007. "Application of Three Alternative Approaches to Identify Business Cycles in Peru," Working Papers 2007-007, Banco Central de Reserva del Perú.
    7. Tingguo Zheng & Yujuan Teng & Tao Song, 2010. "Business Cycle Asymmetry in China: Evidence from Friedman's Plucking Model," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(s1), pages 103-120.
    8. Fatás, Antonio & Mihov, Ilian, 2013. "Recoveries," CEPR Discussion Papers 9551, C.E.P.R. Discussion Papers.
    9. Hartley, Jonathan S., 2021. "Friedman’s plucking model: New international evidence from Maddison Project data," Economics Letters, Elsevier, vol. 199(C).

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