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Is Business Cycle Asymmetry Intrinsic in Industrialized Economies?

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  • James Morley

    () (School of Economics, UNSW Business School, UNSW)

  • Irina B Panovska

    () (Lehigh University)

Abstract

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.

Suggested Citation

  • James Morley & Irina B Panovska, 2016. "Is Business Cycle Asymmetry Intrinsic in Industrialized Economies?," Discussion Papers 2016-12, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2016-12
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2016-12.pdf
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    Cited by:

    1. Güneş Kamber & James Morley & Benjamin Wong, 2016. "Intuitive and reliable estimates of the output gap from a Beveridge-Nelson filter," BIS Working Papers 584, Bank for International Settlements.
    2. repec:eee:ecmode:v:68:y:2018:i:c:p:273-292 is not listed on IDEAS

    More about this item

    Keywords

    output gap; model averaging; business cycle asymmetry; convex Phillips Curve;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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