Rights statement: https://www.cambridge.org/core/journals/macroeconomic-dynamics/article/is-business-cycle-asymmetry-intrinsic-in-industrialized-economies/223E72D606F28AB8BC94CB1EAB145B1C The final, definitive version of this article has been published in the Journal, Macroeconomic Dynamics, 24, 6, pp 1403-1436, 2019, © 2019 Cambridge University Press.
Accepted author manuscript, 1.62 MB, PDF document
Available under license: CC BY-NC: Creative Commons Attribution-NonCommercial 4.0 International License
Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Is Business Cycle Asymmetry Intrinsic in Industrialized Economies?
AU - Morley, James
AU - Panovska, Irina
N1 - https://www.cambridge.org/core/journals/macroeconomic-dynamics/article/is-business-cycle-asymmetry-intrinsic-in-industrialized-economies/223E72D606F28AB8BC94CB1EAB145B1C The final, definitive version of this article has been published in the Journal, Macroeconomic Dynamics, 24, 6, pp 1403-1436, 2019, © 2019 Cambridge University Press.
PY - 2020/9/1
Y1 - 2020/9/1
N2 - We consider a model-averaged forecast-based estimate of the output gap to measure economic slack in ten industrialized economies. Our measure takes changes in the long-run growth rate into account and, by addressing model uncertainty using equal weights on different forecast-based estimates, is robust to different assumptions about the underlying structure of the economy. For all ten countries in the sample, we find that the estimated output gap has much larger negative movements during recessions than positive movements in expansions, suggesting business cycle asymmetry is an intrinsic characteristic of industrialized economies. Furthermore, the estimated output gap is always strongly negatively correlated with future output growth and unemployment and positively correlated with capacity utilization. It also implies a convex Phillips Curve in many cases. The model-averaged output gap is reliable in real time in the sense of being subject to relatively small revisions.
AB - We consider a model-averaged forecast-based estimate of the output gap to measure economic slack in ten industrialized economies. Our measure takes changes in the long-run growth rate into account and, by addressing model uncertainty using equal weights on different forecast-based estimates, is robust to different assumptions about the underlying structure of the economy. For all ten countries in the sample, we find that the estimated output gap has much larger negative movements during recessions than positive movements in expansions, suggesting business cycle asymmetry is an intrinsic characteristic of industrialized economies. Furthermore, the estimated output gap is always strongly negatively correlated with future output growth and unemployment and positively correlated with capacity utilization. It also implies a convex Phillips Curve in many cases. The model-averaged output gap is reliable in real time in the sense of being subject to relatively small revisions.
KW - output gap
KW - model averaging
KW - Markov switching
KW - business cycle asymmetry
KW - convex Phillips Curve
U2 - 10.1017/S1365100518000913
DO - 10.1017/S1365100518000913
M3 - Journal article
VL - 24
SP - 1403
EP - 1436
JO - Macroeconomic Dynamics
JF - Macroeconomic Dynamics
SN - 1365-1005
IS - 6
ER -