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Asymmetry and Duration Dependence in Australian GDP and Unemployment

  • Bodman, Philip M

The periodic structure of business cycles suggests that significant asymmetries are present over different phases of the cycle. This paper uses Markov regime-switching models with fixed and duration dependent transition probabilities to directly model expansions, contractions and durations in Australian GDP growth and unemployment growth. Evidence is found of significant asymmetry in growth rates across expansions and contractions for both series. GDP contractions exhibit duration dependence implying that as output recessions age the likelihood of switching into an expansion phase increases. Unemployment growth does not exhibit duration dependence in either phase. Evidence is also presented that nonlinearities in unemployment growth are well explained by the asymmetries in the GDP growth cycle. The analysis suggests that recessions are periods of rapid and intense job destruction, that Australian unemployment tends to ratchet up in recessionary periods and, in contrast to U.S. and U.K. studies, that shocks to Australian unemployment growth are more persistent in recessions than expansions. Copyright 1998 by The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 74 (1998)
Issue (Month): 227 (December)
Pages: 399-411

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Handle: RePEc:bla:ecorec:v:74:y:1998:i:227:p:399-411
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