Business cycle asymmetry: evidence from Japan’s decade-long deflation

Satoshi Urasawa

Applied Economics Letters, 2020, vol. 27, issue 21, 1711-1717

Abstract: This paper empirically examines the asymmetric behaviour of macroeconomic time series under different economic regimes, focusing especially on whether the economy is in a deflationary or non-deflationary regime, using a threshold vector autoregression model (TVAR). The results provide evidence in favour of asymmetric spillover effects from demand shocks on economic variables such as wages and consumption. In contrast to the non-deflationary period, during the deflationary period demand shocks are not clearly transmitted to the economy overall due mainly to the rigidity of nominal wages. The findings highlight that the state of the economy also matters when we consider the nature of the business cycle.

Date: 2020
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DOI: 10.1080/13504851.2020.1715335

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