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Is Business Cycle Asymmetry Intrinsic in Industrialized Economies?

Listed author(s):
  • James Morley

    ()

    (School of Economics, UNSW Business School, UNSW)

  • Irina B Panovska

    ()

    (Lehigh University)

We consider a model-averaged forecast-based estimate of the output gap to measure economic slack for ten industrialized economies. Our measure takes changes in the long-run growth rate into account and, by accounting for model uncertainty using equal weights on different forecast-based estimates, is robust to different assumptions about the underlying structure of the economy. For each country, we find that the estimated output gap is highly asymmetric, with much larger negative movements during recessions than positive movements in expansions, suggesting that this particular form of business cycle asymmetry is an intrinsic characteristic of industrialized economies. Furthermore, the estimated output gap is strongly negatively correlated with future output growth and unemployment and positively correlated with capacity utilization in each case. It also implies a convex Phillips Curve in many cases.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2016-12.pdf
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2016-12.

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Length: 48 pages
Date of creation: Oct 2016
Handle: RePEc:swe:wpaper:2016-12
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Web page: http://www.economics.unsw.edu.au/
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