Nonlinear Business-Cycle Anatomy

Marco Brianti, Mario Forni, Luca Gambetti and Antonio Granese

No 21333, CEPR Discussion Papers from Centre for Economic Policy Research

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.

JEL-codes: C32 C51 E12 E32 (search for similar items in EconPapers)
Date: 2026-03
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