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Federal Reserve Bank of St. Louis

By Chang-jin Kim, Jeremy Piger and Richard Startz

Abstract

This paper investigates the relationship between permanent and transitory components of U.S. output in an empirical model allowing for business cycle asymmetry. Using a common stochastic trend representation for real GNP and consumption, we divide real GNP into permanent and transitory components, the dynamics of which are different in booms vs. recessions. We find evidence of substantial asymmetries in postwar recessions, and that both the permanent and transitory component have contributed to these recessions. We also allow for the timing of switches from boom to recession in the permanent component to be correlated with switches from boom to recession in the transitory component. The parameter estimates suggest a specific pattern of recessions: switches in the permanent component lead switches in the transitory component both when entering and leaving recessions

Topics: Key words, Asymmetry, Business Cycle, Markov-Switching, Fluctuations
Year: 2000
OAI identifier: oai:CiteSeerX.psu:10.1.1.186.500
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