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

Nicolas Magud ()
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Nicolas Magud: University of Oregon Economics Department

University of Oregon Economics Department Working Papers from 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.

Keywords: Asymmetric Information; Business Cycles; Fiscal Fragility; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: H32 E00 E22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-sea
Date: Written
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Persistent link: http://EconPapers.repec.org/RePEc:ore:uoecwp:2005-20

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