Does Asymmetry of International Shocks Matter for the U.S. Business Cycle?

Abstract

This article proposes and investigates the asymmetry hypothesis, which predicts that an international asymmetric shock tends to have a stronger and longer effect on the U.S. business cycle than a symmetric shock. The hypothesis finds empirical support in the impulse responses of U.S. output and inflation to symmetric and asymmetric shocks; those responses are estimated in a four‐variable structural vector autoregression. The hypothesis also finds support in stylized facts: The longest U.S. expansions have tended to occur when the rest of the world was growing below potential.