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On Asymmetric Business Cycles and the Effectiveness of Counter-Cyclical Fiscal Policies

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  • Nicolas Magud

    (University of Oregon Economics Department)

Abstract

In the presence of informational frictions and uncertainty, an investment model is developed to capture the asymmetric dynamics of business cycles. When affected by a negative shock, the economy responds differently than when hit by a positive shock, both in terms of size and recovery length. In this set up, the role for fiscal policy in smoothing the effects of business cycles fluctuations depends on the initial conditions of the economy at the time of the shock: based on the degree of fiscal fragility of the government, expansionary fiscal policy might be expansionary or contractionary in terms of output.

Suggested Citation

  • Nicolas Magud, 2002. "On Asymmetric Business Cycles and the Effectiveness of Counter-Cyclical Fiscal Policies," University of Oregon Economics Department Working Papers 2005-20, University of Oregon Economics Department, revised 01 May 2005.
    • Handle: RePEc:ore:uoecwp:2005-20
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    File URL: http://economics.uoregon.edu/papers/UO-2005-20_Magud_Cycles.pdf
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    Cited by:

    1. Dionysios K. Solomos & Dimitrios N. Koumparoulis, 2013. "Financial Sector and Business Cycles Determinants in the EMU: An Empirical Approach (1996-2011)," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 34-58.
    2. Delong Li & Mr. Nicolas E Magud & Mr. Fabian Valencia, 2015. "Corporate Investment in Emerging Markets: Financing vs. Real Options Channel," IMF Working Papers 2015/285, International Monetary Fund.
    3. Mr. Nicolas E Magud & Mr. Sebastian Sosa, 2015. "Investment in Emerging Markets We Are Not in Kansas Anymore…Or Are We?," IMF Working Papers 2015/077, International Monetary Fund.
    4. Almeida, Pedro Cameira de & Fuinhas, José Alberto & Marques, António Cardoso, 2011. "A assimetria dos ciclos económicos: Evidência internacional usando o teste triples [The asymmetry of business cycles: International evidence using triples test]," MPRA Paper 35208, University Library of Munich, Germany.
    5. Kassouri, Yacouba & Altıntaş, Halil, 2021. "Cyclical drivers of fiscal policy in sub-Saharan Africa: New insights from the time-varying heterogeneity approach," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 51-67.
    6. Nicolas E. Magud & Sebastian Sosa, 2017. "Corporate Investment in Emerging Markets: The Role of Commodity Prices," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2017), pages 157-195, November.
    7. Xue, Wenjun & Zhang, Liwen, 2019. "Revisiting the asymmetric effects of bank credit on the business cycle: A panel quantile regression approach," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    8. Saini, Seema & Ahmad, Wasim & Bekiros, Stelios, 2021. "Understanding the credit cycle and business cycle dynamics in India," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 988-1006.
    9. Delong Li & Nicolas E. Magud & Fabian Valencia, 2020. "Financial Shocks and Corporate Investment in Emerging Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 613-644, March.
    10. Konstantinos Konstantakis & Theofanis Papageorgiou & Panayotis Michaelides & Efthymios Tsionas, 2015. "Economic Fluctuations and Fiscal Policy in Europe: A Political Business Cycles Approach Using Panel Data and Clustering (1996–2013)," Open Economies Review, Springer, vol. 26(5), pages 971-998, November.
    11. Steve Brito & Mr. Nicolas E Magud & Mr. Sebastian Sosa, 2018. "Real Exchange Rates, Economic Complexity, and Investment," IMF Working Papers 2018/107, International Monetary Fund.
    12. Chai-Thing Tan & Azali Mohamed & Muzafar Shah Habibullah & Lee Chin, 2020. "The Impacts of Monetary and Fiscal Policies on Economic Growth in Malaysia, Singapore and Thailand," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 114-130, June.
    13. Marcella Alifia Kuswana Putri & Chandra Utama & Ivantia Savitri Mokoginta, 2022. "The Impact Of Fiscal Space On Indonesia’S Fiscal Behavior," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(2), pages 235-256, August.
    14. Papageorgiou, Theofanis & Michaelides, Panayotis G. & Tsionas, Efthymios G., 2016. "Business cycle determinants and fiscal policy: A Panel ARDL approach for EMU," The Journal of Economic Asymmetries, Elsevier, vol. 13(C), pages 57-68.
    15. Solomos, Dionysios & Papageorgiou, Theofanis & Koumparoulis, Dimitrios, 2012. "Financial Sector and Business Cycles Determinants in the EMU context: An Empirical Approach (1996-2011)," MPRA Paper 43858, University Library of Munich, Germany.
    16. Huixin Bi & Ms. Wenyi Shen & Ms. Susan S. Yang, 2014. "Fiscal Limits, External Debt, and Fiscal Policy in Developing Countries," IMF Working Papers 2014/049, International Monetary Fund.
    17. Toshihiro Ihori, 2013. "Fiscal Fluctuation Risks and Intergovernmental Functional Allocation," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(1), pages 1-32, January.

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    More about this item

    Keywords

    Asymmetric Information; Business Cycles; Fiscal Fragility; Fiscal Policy;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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