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Fluctuations in confidence and asymmetric business cycles

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  • Simon M. Potter

Abstract

There is now a great deal of empirical evidence that business cycle fluctuations contain asymmetries. The asymmetries found in post-war U.S. data are inconsistent with the behavior of the U.S. economy in the Great Depression. In a model where business cycle asymmetries are produced by rational fluctuations in the confidence of investors, I examine whether this inconsistency can be explained by differences in government policy. It is found that the 'ineptness' of government intervention during the Great Depression in reducing the confidence of investors rather than the success of post-war stabilization policy in raising confidence is the most likely explanation.

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  • Simon M. Potter, 1999. "Fluctuations in confidence and asymmetric business cycles," Staff Reports 66, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:66
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. M Sensier & D van Dijk, 2001. "Short-term Volatility Versus Long-term Growth: Evidence in US Macroeconomic Time Series," Economics Discussion Paper Series 0103, Economics, The University of Manchester.
    2. Karl Taylor & Robert McNabb, 2007. "Business Cycles and the Role of Confidence: Evidence for Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 185-208, April.
    3. repec:zbw:bofrdp:2004_019 is not listed on IDEAS
    4. Van Nieuwerburgh, Stijn & Veldkamp, Laura, 2006. "Learning asymmetries in real business cycles," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 753-772, May.
    5. Guse, Eran A., 2004. "Expectational business cycles," Bank of Finland Research Discussion Papers 19/2004, Bank of Finland.
    6. Eran Guse, 2004. "Expectational Business Cycles," Money Macro and Finance (MMF) Research Group Conference 2004 97, Money Macro and Finance Research Group.
    7. Eran Guse, 2004. "Expectational Business Cycles," Money Macro and Finance (MMF) Research Group Conference 2004 97, Money Macro and Finance Research Group.
    8. Guse, Eran A., 2014. "Adaptive learning, endogenous uncertainty, and asymmetric dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 355-373.

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