International Evidence on Friedman's Theory of the Business Cycle

Thomas H Goodwin and Richard J Sweeney

Economic Inquiry, 1993, vol. 31, issue 2, 178-93

Abstract: Milton Friedman's theory of the business cycle implies two empirical regularities tested for here. One regularity i s that business cycles are asymmetric: the size of a contraction affec ts the size of the following expansion but not vice versa. The second regularity is that a supply-side ceiling to aggregate output limits the size of expansions. Friedman's correlation methods yield only very w eak support for the asymmetry hypothesis when applied to real GNP data o f eight OECD countries. A time-series model with a ceiling component f its the data well for a majority of the countries. Copyright 1993 by Oxford University Press.

Date: 1993
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