Gone with the cycle: The asymmetric impact of business cycle on growth

PurposeRising crude oil prices are likely to have an asymmetric and nonlinear negative impact on GDP growth. The purpose of this paper is to ask the following questions: Does the effect of a crude price shock depend on the position of crude price cycle, i.e. is the effect of price shock larger/smaller in periods of already elevated crude price? And, does the effect of crude price shock depend on the position of the economy in the business cycle, i.e. does the crude price shock affect growth differentially in periods of low/high growth?Design/methodology/approachThe authors use a local linear projection (LLP) model to examine the asymmetric impact of crude price on GDP growth in an environment of high crude price. Next, a quantile regression model is used to account for differential impact on growth around high and low growth periods.FindingsResults from the LLP model show that when oil price is above $70, each additional percentage point of increase in oil price results in a 20 basis point (bps) drop in quarterly GDP growth rate on average. The impact is felt between the third and sixth quarters. When oil prices rise above $80, the impact is similar, with a sharper drop in growth (30 bps). The exercise with quantile regression shows that the impact of an increase in crude prices on growth is almost double at lowest quantiles of growth compared with the median.Originality/valueThere is a growing literature that evaluates the impact of oil price in developing economies. However, nonlinearities in crude price-GDP growth dynamics have not received enough attention, especially during phases of elevated crude price or a growth downcycle. The authors believe that accounting for such effects is especially relevant in the present economic scenario of high oil prices because of geopolitical crises and a period of vulnerable growth because of supply chain issues arising out of the pandemic. Using recent data from oil-importing emerging market economies such as India, this paper fills a crucial gap in the literature.

There is a broad theoretical consensus on the effects of transfers (desired incentive impacts and induced adverse effects). But, as the literature review shows, there is not an accepted methodology for the empirical evaluation of these effects. The authors suggest a simple but rigorous empirical approach to quantify the catalytic effect of conditioned transfers for investment and their asymmetric impact across regions in Spain. To identify this behaviour, they have applied different empirical approaches with frontier techniques that let them consider the frontier as a proxy for potential investment. The results show that the conditioned transfers received by the regions from higher levels of government have a stimulus effect for investments, especially in the poor regions. The authors identify several factors explaining this unbalanced catalytic effect: the political cost of tax collection, political factors, inadequate management of debt, and other variables such as the level of economic development, population density, and the economic cycle.

This study analyses shifts in employment structures in a selection of eight EU countries (Ireland, France, Spain, Germany, Czechia, Italy, Sweden and Romania) as well as employment dynamics at the aggregate EU level. This is done for four periods, separated by the financial crisis and the outbreak of the COVID-19 crisis. Results show that there is a wide diversity of patterns of structural change across periods and countries in Europe. During the expansive phase of the business cycle, the pattern that was more widespread was job upgrading, with the number of workers increasing more in high-paid jobs (especially in private and public services). During the financial crisis (2008–2010) and the following period (2011–2019), the patterns of structural change were much more diverse. Still, some general lines can be traced. Workers that were hardest hit by the financial crisis were located in the middle of the wage structure. The global financial crisis impacted hardest on male workers and workers that were employed in construction and manufacturing, while the number of workers in public services continued increasing. From 2011, net employment growth was mainly driven by the increase in the size of service jobs, with employment in private services growing in a polarized way and public services promoting upgrading. Finally, the COVID-19 crisis had an asymmetric impact, impacting mainly employment in low-paid in-person service activities and agriculture.

Financial Conditions, Business Cycle Fluctuations and Growth at Risk

Do innovation in environmental-related technologies cyclically and asymmetrically affect environmental sustainability in BRICS nations?

Bank fee-based shocks and the U.S. business cycle

Nonlinear ARDL estimation of tourism demand for Puerto Rico from the USA

Crude oil is an essential source of energy. Without access to energy, output growth is impossible. As a result of this link, volatility in oil prices has the ability to induce fluctuations in the output of both developed and developing economies. Moreover, factors such as business cycles and policy changes often introduce nonlinearity into the transmission mechanism of oil price shocks. This study therefore examines not only the interconnectedness of oil price volatility and output growth, but also the nonlinear, asymmetric impact of oil price volatility on output growth in the countries making up the Group of Seven. To this end, monthly data on West Texas Intermediate oil price and industrial production indices of the Group of Seven countries over the period 1990:01 to 2019:08 is used for empirical analysis. The study employs the DCC and cDCC-GARCH techniques for symmetric empirical analysis. The asymmetric empirical analysis is also conducted via GJR-GARCH, FIEGARCH, HYGARCH and cDCC-GARCH techniques. The findings reveal disparities in the magnitudes of the positive and negative (asymmetric) effects of oil price shocks on output growth. The results also reveal that past news and lagged volatility have a significant impact on the current conditional volatility of the output growth of the Group of Seven countries. The study concludes that the impact of oil price volatility on output growth in the selected economies is asymmetric, the volatility is highly persistent and clustered, and the asymmetric GARCH models outperform the symmetric GARCH models.

This paper studies the role of economic policy uncertainty (EPU) on US trade. It contributes to the literature by analyzing the asymmetric impact of policy uncertainty on the US trade with Canada, China, Germany, Japan and the United Kingdom from December 1989 to December 2017. Results suggest that there is a negative relationship between the EPU and the US trade flows. Further, US trade responds more sensitively to a rise in uncertainty compared to an equal negative shock, confirming the asymmetric hypothesis both in the short run and the long run. Comparing the respective uncertainty indices, US EPU has a significantly greater impact on the trade relative to the EPU of its trading partners. These findings have both demand and supply side implications – i.e. increase in the economic policy uncertainty can reduce the aggregate consumption significantly. Also, due to uncertain profit margins, businesses can choose to delay long-term investment projects and inventory levels resulting in a widespread recessionary effect on the US business cycle.

This paper investigates the impact of institutions on the dollarization of the domestic banking system using a unique policy experiment: the process of accession of countries to the European Union (EU). Using a dynamic factor model, we decompose fluctuations in financial dollarization for 24 transition economies into a common factor, an EU factor, a non-EU factor, and country-specific factors. The EU factor, which proxies for improvements in institutions under the set criteria for eventual membership, reveals the importance of institutions for the extent of financial dollarization over time. The results also indicate the asymmetric impact of improved institutions on the domestic bank's balance sheets by inducing higher loan dollarization and lower deposit dollarization. The relative importance of the EU factor to the financial dollarization of a country is associated to the degree of comovement of its business cycle with that of the EU.

This paper investigates the importance of financial depth in evaluating the asymmetric impact of monetary policy on real output over the course of the US business cycle. We show that monetary policy has a significant impact on output growth during recessions. We also show that financial deepening plays an important role by dampening the effects of monetary policy shocks in recessions. The results are robust to the use of alternative financial depth and monetary policy shock measures as well as to two different sample periods.

Numerous papers have tried to understand housing's role in the economy and have not reached an agreement. In this paper we turn to the asymmetric relationship between housing and the overall economic activity. We find that the relation between building permits and GDP is regime-dependent. Causality analysis suggests that the housing variable leads output only in the regime associated with periods when the housing and business cycles are experiencing contractions. Our findings not only echo the argument that housing leads the business cycles, but also show that it has time-varying effect on the overall economic activity.

Overinvestment, inflation uncertainty, and managerial overconfidence: Firm level analysis of Chinese corporations

Heightened uncertainty in global economic policy has sparked a renewed interest in studying people’s demand for money, particularly to explore whether this demand exhibits asymmetry. In this study, we utilize a nonlinear ARDL approach to investigate the asymmetric effects of global economic policy uncertainty on money demand in each GCC country. Understanding the impact of global economic policy uncertainty on money demand in GCC countries is essential for crafting effective monetary policies, especially given that these countries maintain a pegged exchange rate to the US dollar, leaving them susceptible to economic slowdowns and global business cycles. The findings show varying sensitivity to changes in economic policy uncertainty across GCC countries, with most countries demonstrating asymmetric responses. Policymakers should consider incorporating a nonlinear ARDL model when analyzing money demand in these nations.

Many macroeconomic models predict asymmetric or non-linear effects of monetary policy on output and prices. This paper attempts to examine whether Moroccan monetary policy have symmetric or asymmetric effects on prices and output. We test all the three main forms of asymmetry discussed in the literature. Moreover, the research investigates some hybrid cases in order to deepen the analysis of asymmetric impact of monetary policy. We follow Cover(1992)’s methodology but with some modifications. We find evidence in favor of asymmetric effects of monetary policy decision on output and prices. The results do not support the asymmetry related to the sign of monetary policy. However, the findings indicate the presence of asymmetric effects with regard to stages of business cycle. This result was corroborated by those of the hybrid case. We also show that while the small and big money supply shocks have a symmetric effect on output, prices respond asymmetrically to those shocks. The estimations of the hybrid case give further insight that the small and big negative monetary policy shocks have an asymmetric effect on output comparatively to small and big positive shocks. As far as prices are concerned, the impact of big positive and negative monetary policy shocks is symmetric whereas the effect of small positive and negative shocks is asymmetric.