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Nonlinear Business-Cycle Anatomy

Author

Listed:
  • Brianti, Marco
  • Forni, Mario
  • Gambetti, Luca
  • Granese, Antonio

Abstract

Building on a frequency-domain identification within a nonlinear Structural Dynamic Factor Model, we study the nonlinear transmission of demand and supply shocks, the two shocks accounting for the bulk of fluctuations in U.S. macroeconomic variables. Supply shocks propagate symmetrically and are well described by linear dynamics. Demand shocks, by contrast, display strong sign asymmetries: contractionary shocks generate larger and more persistent declines in real activity, with limited adjustment of prices and nominal wages, an asymmetry amplified in booms. A New Keynesian model with downward nominal wage rigidity rationalizes these findings, highlighting the role of nominal rigidities as a source of nonlinearities.

Suggested Citation

  • Brianti, Marco & Forni, Mario & Gambetti, Luca & Granese, Antonio, 2026. "Nonlinear Business-Cycle Anatomy," CEPR Discussion Papers 21333, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21333
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    File URL: https://cepr.org/publications/DP21333
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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