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A Note on Business Cycle Non-Linearity in U. S. Consumption

The recently examined durability-asymmetry hypothesis of Cook (1999) is re-evaluated using the diagnostic tests of time deformation proposed by Stock (1987, 1988). An application of these tests to disaggregated data on U.S. consumers’ expenditure provides further support for this hypothesis, with the findings given an economic interpretation in terms of variables evolving at differing speeds over different phases of the business cycle. Additionally, building upon the studies of Cover (1992), Karras (1996) and Rhee and Rich (1995), recent research by Arden et al. (2000) has shown the relaxation of the assumptions of linearity and symmetry typically employed in macroeconometric models to result in monetary policy having clear asymmetric effects on the economy. In particular it was shown that expansionary monetary policy as given by a reduction in the interest rate, has greater effects than contractionary policy (an increase in the interest rate), and that this becomes more apparent when the economy is in recovery rather than recession. The finding of nonlinearity in U.S. consumption therefore has major implications for econometric modelling and policy analysis.

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Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VI (2003)
Issue (Month): (November)
Pages: 247-253

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Handle: RePEc:cem:jaecon:v:6:y:2003:n:2:p:247-253
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  1. Caballero, Ricardo J, 1993. "Durable Goods: An Explanation for Their Slow Adjustment," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 351-84, April.
  2. Arden, Richard, et al, 2000. "The Asymmetric Effects of Monetary Policy: Some Results from a Macroeconometric Model," Manchester School, University of Manchester, vol. 68(4), pages 419-41, Special I.
  3. Daniel E. Sichel, 1989. "Business cycle asymmetry: a deeper look," Working Paper Series / Economic Activity Section 93, Board of Governors of the Federal Reserve System (U.S.).
  4. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  5. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1261-82, November.
  6. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
  7. Rhee, Wooheon & Rich, Robert W., 1995. "Inflation and the asymmetric effects of money on output fluctuations," Journal of Macroeconomics, Elsevier, vol. 17(4), pages 683-702.
  8. Stock, James H, 1987. "Measuring Business Cycle Time," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1240-61, December.
  9. Stock, James H., 1987. "Measuring Business Cycle Time," Scholarly Articles 3425950, Harvard University Department of Economics.
  10. Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 169-98, April.
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