A Note on Business Cycle Non-Linearity in U.S. Consumption

Steven Cook

Journal of Applied Economics, 2003, vol. 6, issue 2, 247-253

Abstract: The recently examined durability-asymmetry hypothesis of Cook (1999) is re-evaluated using the diagnostic tests of time deformation proposed by Stock (1987, 1988). An application of these tests to disaggregated data on U.S. consumers' expenditure provides further support for this hypothesis, with the findings given an economic interpretation in terms of variables evolving at differing speeds over different phases of the business cycle. Additionally, building upon the studies of Cover (1992), Karras (1996) and Rhee and Rich (1995), recent research by Arden et al. (2000) has shown the relaxation of the assumptions of linearity and symmetry typically employed in macroeconometric models to result in monetary policy having clear asymmetric effects on the economy. In particular it was shown that expansionary monetary policy as given by a reduction in the interest rate, has greater effects than contractionary policy (an increase in the interest rate), and that this becomes more apparent when the economy is in recovery rather than recession. The finding of non- linearity in U.S. consumption therefore has major implications for econometric modelling and policy analysis.

Date: 2003
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DOI: 10.1080/15140326.2003.12040593

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