Is the US business cycle asymmetric? Some further evidence

Abstract

Evidence of nonlinearity in growth rates of monthly industrial production, unit labour costs, consumer prices and unemployment is reported and alternative representations of that nonlinearity examined. Specifically, AR-GARCH, SETAR and TARX models are estimated, discriminating between these representations using tests for neglected residual structure. Consumer prices and industrial production are most parsimoniously modelled as linear-GARCH, unemployment as SETAR, and unit labour costs as TARX conditioned on industrial production. Unit labour costs, unemployment and inflation lag the cycle in industrial production by one, four and five months, respectively, and the cycle in unemployment is asymmetric with respect to that in industrial production. Finally, evidence is reported of a limit cycle in logistically transformed unemployment which consists of eight cycles of fourteen months.