Common stochastic trends, common cycles, and asymmetry in economic fluctuations

Chang-Jin Kim, Jeremy Piger

Research output: Contribution to journalArticle

38 Citations (Scopus)

Abstract

This paper investigates the nature of U.S. business cycle asymmetry using a dynamic factor model of output, investment, and consumption. We identify a common stochastic trend and common transitory component by embedding the permanent income hypothesis within a simple growth model. Markov-switching in each component captures two types of asymmetry: Shifts in the growth rate of the common stochastic trend, having permanent effects, and "plucking" deviations from the common stochastic trend, having only transitory effects. Statistical tests suggest both asymmetries were present in post-war recessions, although the shifts in trend are less severe than found in the received literature.

Original languageEnglish
Pages (from-to)1189-1211
Number of pages23
JournalJournal of Monetary Economics
Volume49
Issue number6
DOIs
Publication statusPublished - 2002 Sep 1

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Keywords

  • Asymmetry
  • Business cycles
  • Common shocks
  • Markov-switching
  • Productivity slowdown

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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