Is Business Cycle Asymmetry Intrinsic in Industrialized Economies?

James Morley and Irina Panovska

No 2016-12, Discussion Papers from School of Economics, The University of New South Wales

Abstract: We consider a model-averaged forecast-based estimate of the output gap to measure economic slack for ten industrialized economies. Our measure takes changes in the long-run growth rate into account and, by accounting for model uncertainty using equal weights on different forecast-based estimates, is robust to different assumptions about the underlying structure of the economy. For each country, we find that the estimated output gap is highly asymmetric, with much larger negative movements during recessions than positive movements in expansions, suggesting that this particular form of business cycle asymmetry is an intrinsic characteristic of industrialized economies. Furthermore, the estimated output gap is strongly negatively correlated with future output growth and unemployment and positively correlated with capacity utilization in each case. It also implies a convex Phillips Curve in many cases.

Keywords: output gap; model averaging; business cycle asymmetry; convex Phillips Curve (search for similar items in EconPapers)
JEL-codes: E32 E37 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: IS BUSINESS CYCLE ASYMMETRY INTRINSIC IN INDUSTRIALIZED ECONOMIES? (2020)
Working Paper: Is Business Cycle Asymmetry Intrinsic in Industrialized Economies? (2017)
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