the labour market over the business cycle can theory fit the facts we examine the ability of six labour market models to account for the business cycle behaviour of uk labour markets when embedded in a stochastic growth model we assess the models in terms of i their ability to mimic general business cycle correlations and volatility ii their success at explaining the persistence of labour market fluctuations and iii whether the models can explain why the growth and speed of adjustment of labour market variables changes between periods of expansions and contractions the main success of the models is the ability to broadly account for business cycle correlations and co movements and the changes in employment unemployment growth rates between expansions and contractions however there are three main failures a the models tend to produce insufficiently volatile employment and unemployment fluctuations b the models tend to produce too strong a correlation between wages and employment c most of the models generate only brief temporary deviations in unemployment in response to shocks rather than the protracted dynamics of the data

asymmetric persistence in gdp a deeper look at depth abstract if an economic time series behaves asymmetrically then an interpretation of economic fluctuations based on linear time series models could be misleading beaudry and koop 1993 recently argued that for post war us gdp data there exists a statistically significant difference in persistence between negative and positive shocks we demonstrate that their test has two pitfalls first the t statistic for testing asymmetry in persistence does not have a conventional interpretation second a highly significant t value may come from sources different from asymmetry using international data we investigate for the presence of asymmetric persistence across the g 7 countries

further evidence on the asymmetric behavior of economic time series over the business cycle evidence has recently been presented by salih neftci to support the hypothesis that recessions in economic activity tend to be steeper and more short lived than recoveries in economic activity that evidence however was confined to the behavior of the unemployment rate in the united states in this paper it is shown that when neftci s methods are applied to analyze the behavior of real gross national product investment and productivity in the united states or when they are used to analyze industrial production abroad the asymmetry hypothesis seems to be less compelling

the brevity and violence of contractions and expansions abstract early studies of business cycles argued that contractions in economic activity were briefer shorter and more violent rapid than expansions this paper systematically investigates this claim and in the process discovers a robust new business cycle fact contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output the difference arises because employment typically lags output around peaks but they coincide in their troughs we discuss the performance of existing business cycle models in accounting for this fact and conclude that none can fully account for it we then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively

stocks flows and some exchange rate dynamics for the currency substitution model abstract the paper argues that the treatment of stocks and flows in portfolio balance models of exchange rate determination is inadequate and that this hampers the analysis of exchange rate dynamics a proposed resolution is reworked into the currency substitution model in addition to providing explicit solutions for the spot rate of exchange depreciation under different expectational hypotheses an attempt is made to clarify the dynamic properties of the model inter alia it is shown how exchange rate overshooting is possible without having to assume market frictions how a deteriorating current account deficit can coexist with an appreciating exchange rate and more generally how portfolio induced jumps in the exchange rate are linked to balance of payments flow influences on the evolution of the exchange rate

local benefit seeking and national policymaking democrats vs republicans in the legislature a simple economic theory may provide at least a partial explanation for the ticket splitting pattern that has been observed at the federal level in the united states where republicans do better in races for the white house than in contests for congressional seats to the extent that democratic legislators because of their ideology are more willing to forgo national policymaking for local benefit seeking than their republican counterparts rational voters have an investment incentive to 1 lean democratic when it comes to casting ballots for an individual representative to congress thereby attempting to secure as large as possible a slice of the total government spending pie and 2 lean republican when it comes to races for the presidency so as to limit the net losses imposed by the prisoner s dilemma game that local benefit seeking by congressional representatives entails

asymmetric employment cycles in britain evidence and an explanation search and matching models imply that firms employment adjustment costs depend on the tightness of the labor market giving rise to endogenous or nonlinear dynamics in employment this paper sets this argument out in detail estimating a model simultaneously explaining the long run level of employment and the nonlinear dynamics one of the implications of the estimated model is that asymmetric business cycles occur with the downswing in employment being sharper and deeper than the upswing copyright 1992 by royal economic society

cyclical factor utilization abstract we introduce procyclical labor and capital utilization as well as costs of rapidly increasing employment into a business cycle model plausible variations in factor utilization enable us to explain observed variability of real gnp with considerably smaller economy wide disturbances the costs of adjustment create very interesting and realistic lead and lag relationships employment does not peak until a full quarter after output workweeks effort capital utilization and productivity all sharply lead the business cycle

have postwar economic fluctuations been stabilized previous investigations of whether the volatility of the u s economy diminished after world war ii have been inconclusive because of questionable prewar macroeconomic aggregates we examine more broadly the hypothesis of the stabilization of the postwar economy by focusing on the duration of business cycles rather than their amplitude in the process we avoid the debate about the quality of prewar aggregates using distribution free statistics we find clear evidence of postwar duration stabilization in terms of a shift toward longer expansions and shorter contractions moreover we find no shift in whole cycle durations which suggests a reallocation of the business cycle away from contraction and toward expansion

dynamic asymmetries in u s unemployment we examine dynamic asymmetries in u s unemployment using nonlinear time series models and bayesian methods we find strong statistical evidence in favor of a two regime threshold auto regressive model empirical results indicate that once we take into account both parameter and model uncertainty there are economically interesting asymmetries in the unemployment rate one finding of particular interest is that shocks that lower the unemployment rate tend to have a smaller effect than shocks that raise the unemployment rate this finding is consistent with unemployment rises being sudden and falls gradual

forecasting asymmetric unemployment rates asymmetric behavior has been documented in postwar quar terly u s unemployment rates this suggests that improvement over conventional linear forecasts may be possible through the use of nonlinear time series models in this note an out of sample forecasting competition is carried out for a set of leading nonlinear time series models it is shown that several nonlinear forecasts do indeed dominate the linear forecast the results are sensitive however to whether a stationarity inducing transfor mation is applied to the nonstationary unemployment rate series

are business cycles asymmetric a correction neftci 1984 proposed a nonparametric test procedure for determining whether business cycles are asymmetric in the sense that contractions are steeper than expansions he found evidence of this type of asymmetry in postwar quarterly u s unemployment variables this comment identifies a probable error in neftci s empirical work that reverses the significance of his results for the unemployment rate and it suggests that this test may have low power and be sensitive to measurement error

employment and hours over the business cycle abstract approximately one quarter of the adjustment in total hours of employment over the business cycle represents adjustments in hours while the remainder is explained by changes in employment real business cycle models characterize agents as either continuously adjusting their hours or making only labor force participation decisions about jobs with indivisible hours in this paper we extend the representative agent framework to allow for decisions on both participation and hours we calibrate and simulate a dynamic version of the model and show that it is better able to mimic some features of the aggregate data

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

do recessions permanently change output abstract this paper examines whether negative innovations to gnp are more or less persistent than positive innovations we find that once we allow for the impulse response of gnp to be asymmetric negative innovations to gnp are observed to be much less persistent than positive ones in particular the effect of a recession on the forecast of output is found to be negligible after only eight to twelve quarters while the effect of a positive shock is estimated to be persistent and amplified over time our results may therefore help reconcile two antagonistic views about the nature of business cycle fluctuations

straight time and overtime in equilibrium abstract we formulate an equilibrium model of straight time and overtime wages by imposing restrictions on agents consumption sets and using a commodity space that includes employment lotteries we extract some time series implications from a linear quadratic approximation to our model evaluated at particular parameter values we use our model informally to interpret some features of observed time series for wages and employment

time irreversibility and business cycle asymmetry the problem of business cycle symmetry is addressed within the context of time reversibility to this effect the authors introduce a time domain test of time reversibility the tr test in an application they show that time irreversibility is the rule rather than the exception for two well known representative macroeconomic data sets this shows that many components of the business cycle have asymmetric fluctuations the characterization of asymmetry provided by the tr test shows that many series exhibit steepness asymmetry a few series appear to be either deep or sharp copyright 1996 by ohio state university press

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

business cycle duration dependence a parametric approach this paper reexamines duration dependence in u s business cycles using parametric hazard models positive duration dependence would indicate that expansions or contractions are more likely to end as they become older this paper provides statistically significant evidence of positive duration dependence for expansions before world war ii and contractions after world war ii the evidence is stronger than in earlier research utilizing nonparametric techniques because certain nonparametric techniques have low statistical power against the type of duration dependence found in this paper evidence is also presented suggesting that expansions became longer on average after world war ii while contractions became shorter copyright 1991 by mit press

persistence of employment fluctuations a model of recurring job loss standard models of employment fluctuations cannot reconcile the unemployment rate s remarkable persistence with the high job finding rates found in worker flows data a matching model emphasizing high hazard rates among newly formed firm worker matches can resolve this shortcoming in the model matches are experience goods consequently newly employed workers face higher hazard rates following a job loss workers may experience several short lived jobs before finding stable employment at an aggregate level an initial burst of job loss precipitates a steady flow of recurring job loss a simulation shows that this recurring job loss can account for the fact that the unemployment rate remains elevated for as much as 4 or 5 years following an initial jump intuitively the labour market frictions associated with the difficult and time consuming process of matching unemployed workers with appropriate jobs represent an appealing way to enhance conventional dynamic general equilibrium models of economic fluctuations that generally exhibit very little internal propagation of business cycle shocks 1 nevertheless although conventional matching models such as the canonical mortensen and pissarides 1994 model successfully explain many other important features of the labour market they fail to explain the high degree of persistence observed in the u s unemployment rate the primary reason for this failure is that data on labour market flows show that unemployed workers actually find jobs quite quickly therefore following a shock that triggers a burst of job loss the high job finding rate implies that the unemployment rate in these models returns quite rapidly back toward its average level this represents a significant obstacle to the notion that frictions in the labour market account for much of the propagation of business cycle shocks this paper asserts that existing matching models fail to capture an important feature of the labour market that can reconcile the dramatic persistence of the unemployment rate with the evidence of high job finding rates specifically although unemployed workers find jobs quickly the newly found jobs often last only a short time after an initial job loss a worker may experience several short lived jobs before settling into more stable employment this recurring job loss slows the pace at which the unemployment rate returns to its normal level following an adverse shock

on the timing and efficiency of creative destruction we analyze the timing pace and efficiency of ongoing job reallocation that results from product and process innovation there are strong reasons why an efficient economy ought to concentrate both job creation and destruction during recessions when the opportunity cost of reallocation is lowest incomplete contracting between labor and capital can disrupt this synchronized pattern and decouple creation and destruction transactional difficulties also lead to technological sclerosis characterized by excessively slow renovation government incentives to production may alleviate high unemployment but exacerbate sclerosis in contrast creation incentives increase the pace of reallocation an optimal combination of both policies restores economic efficiency

a nonparametric investigation of duration dependence in the american business cycle does the termination probability of a business expansion or contraction increase with age this question may be formally addressed by analyzing the nature of duration dependence in aggregate economic activity our null hypothesis is that there is no duration dependence which we test via intentionally nonparametric procedures we also argue that common notion of business cycle periodicity can be usefully interpreted in terms of whole cycle duration dependence we find some evidence for duration dependence in whole cycles and in prewar expansions but little evidence elsewhere

business cycle asymmetry a deeper look this paper distinguishes two types of asymmetry in business cycles deepness and steepness deepness is defined as the characteristic that troughs are further below trend than peaks are above most previous research has focused exclusively on steepness which refers to cycles in which contractions are steeper than expansions a test for deepness is proposed and applied to u s post war quarterly unemployment real gnp and industrial production evidence of deepness is found for unemployment and industrial production while the evidence for real gnp is weaker previous evidence of steepness in unemployment is confirmed

asymmetric business cycles theory and time series evidence abstract we offer a theory of economic fluctuations based on intertemporal increasing returns agents who have been active in the past face lower costs of action today this specification explains the observed persistence in individual and aggregate output fluctuations even in the presence of i i d shocks because individuals respond to the same shock differently depending on their recent past experience the exact process for output the sharpness of turning points and the degree of asymmetry are determined by the form of heterogeneity our general formulation under certain assumptions reduces to a number of popular state space unobserved components models we find that on us data our general formulation performs better than many of the existing econometric models largely because it allows sharper downturns and more pronounced asymmetries than linear models and is smoother than discrete regime shift models our estimates imply that only modest intertemporal returns are needed for our model to explain us gnp and that heterogeneity across agents plays an important role in the propagation of business cycle shocks

real business cycles and the test of the adelmans abstract this paper conducts a modern variant of the test proposed and carried out by adelman and adelman 1959 using the methods developed by burns and mitchell 1946 we see if we can distinguish between the economic series generated by an actual economy and those analogous artificial series generated by a stochastically perturbed economic model in the case of the adelmans the model corresponded to the klein goldberger equations in our case the model corresponds to a simple real business cycle model the results indicate a fairly high degree of coincidence in key economic aggregates between the business cycle characteristics identified in actual data and those found in our simulated economy

business cycle asymmetries characterisation and testing based on markov switching autoregressions tests for business cycle asymmetries are developed for markov switching autoregressive models the tests of deepness steepness and sharpness are wald statistics which have standard asymptotics for the standard two regime model of expansions and contractions deepness is shown to imply sharpness and vice versa whereas the process is always nonsteep two and three state models of u s gnp growth are used to illustrate the approach along with models of u s investment and consumption growth the robustness of the tests to model misspecification and the effects of regime dependent heteroscedasticity are investigated