Business Cycle Fluctuations: why are so undesirable?

khan, sajawal (2018): Business Cycle Fluctuations: why are so undesirable?

Abstract

Abstract The main focus of macroeconomic policies around the world is the stabilization of business cycles fluctuations. The policy makers, economists, producers and households are all concerned about the swings in economic activities and want to mute them down. The question arises why these fluctuations are so undesirable and everyone is too much worried about them. The main reason behind these concerns is. 1) Business cycle fluctuations lowers the lifetime discounted income/ consumption in the economy. 2) These fluctuations also affect distribution of income in the society. 3) These negatively affect the long run potential level of the economy. The focus of this study is to investigate; whether the business fluctuations affect long run potential level; and the role and importance of asymmetries in the behavior and impacts of these fluctuations.

• Item Type: MPRA Paper
• Language: English
• Keywords: Business Cycles, Asymmetries, Macroeconomic Polies
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

References

References Acemoglu, D., and Scott, A. (1997), “Asymmetric business cycles: Theory and time‐series evidence”. Journal of Monetary Economics, 40(3): 501‐533 Agénor, P., (2001), “Benefits and Costs of International Financial Integration: Theory and Facts”. The World Bank. Agnello, L. and Sousa, R. M. (2012), “How Does Fiscal Consolidation Impact on Income Inequality?” Banque de France, Document de Travail 282. Ahmed, S., Levin, A., and Wilson, B.A. (2002), "Recent U.S. macroeconomic stability: Good luck, good policies, or good practices?" Board of Governors, Federal Reserve Bank. Manuscript. Alesina, A., Ozler, S., Roubini, N., and Swagel, P. (1996), “Political instability and economic growth". Journal of Economic Growth, 1(1): 189–211. Baldacci, E., de Mello,L. and Inchauste,G. (2002), “Financial Crises, Poverty, and Income Distribution”. IMF Working Paper 02/4. Ball, L. Furceri, D., Leigh, D., and Loungani, P. (2013), “The Distributional Effects of Fiscal Consolidation”. IMF Working Paper 13/151. Barlevy, G., (2004), “The cost of business cycles under endogenous growth”. American Economic Review 94 (4): 964–989. Barro, R. J. (1991), “Economic Growth in a Cross Section of Countries”. The Quarterly Journal of Economics, 106(2): 407‐443. Belongia, M. T. (1996), "Measurement Matters: Recent Results from Monetary Economics Reexamined," Journal of Political Economy, University of Chicago Press, 104(5): 1065‐1083. Blanchard, O. and Simon, J. (2001), “The long and large decline in U.S. output volatility”. Brookings Papers on Economic Activity, 2001(1):135‐164. Boldrin, M. & Levine, D.K. (2001), "Growth Cycles and Market Crashes,”. Journal of Economic Theory, Elsevier, 96(1‐2): 13‐39. Woo, J., Bova,E., Kinda, T., and Zhang, Y.S. (2013), “Distributional Consequences of Fiscal Consolidation and the Role of Fiscal Policy: What Do the Data Say?” IMF Working Paper 13/195. Brunnermeier, M.K., and Sannikov, Y. (2012), “Redistributive Monetary Policy: Leverage, Business Cycles and Monetary Policy”. Proceedings ‐ Economic Policy Symposium ‐ Jackson Hole, Federal Reserve Bank of Kansas City, 331‐384. Caballero, R.J., and Hammour, M.L. (1994), “The Cleansing Effect of Recessions.” American Economic Review 84(5): 1350–68. Chalkley, M.J., and Lee, I.H. (1998), “Learning and Asymmetric Business Cycles ". Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, 1(3): 623‐645. Coibion, O., Gorodnichenko, Y., Keung, L., and Silvia, J. (2012), “Innocent Bystanders? Monetary Policy and Inequality in the U.S.,” NBER Working Paper No. 18170. Cogley, T., and Sargent, T. J. (2005), “Drifts and volatilities: Monetary policies and outcomes in the post‐ WWII U.S”. Review of Economic Dynamics, 8(2): 262‐302. De Long, J.B., Summers, L.H., (1988), “How does macroeconomic policy affect output?” Brookings Papers on Economic Activity , (2), 433‐480. Domac, I. (1999), “The Distributional Consequences of Monetary Policy: Evidence from Malaysia,” World Bank Policy Research Paper. Fatás, A. 2000. “Do Business Cycles Cast Long Shadows? Short‐Run Persistence and Economic Growth.” Journal of Economic Growth, 5(2): 147–62. Friedman, M., (1968) “The Role of Monetary Policy,” Presidential Address to the American Economic Association, American Economic Review, 58(1): 1‐17. Galí, J., and Hammour, M.L. (1991), “Long‐Run Effects of Business Cycles.” Manuscript, Columbia University. Garcia, R. and Schaller, H. (2002), “Are the Effects of Interest Rate Changes Asymmetric?”., Economic Inquiry, 40, 102‐119. Hall, R. (1991), “Recessions as Reorganizations.” In NBER Macroeconomics Annual, edited by Olivier J. Blanchard and Stanley Fischer. MIT Press. Jovanovic, B. (2006). "Asymmetric Cycles," Review of Economic Studies, Oxford University Press, 73(1): 145‐162. Judson, R. & Orphanides, A. (1999), "Inflation, Volatility and Growth," International Finance, Wiley Blackwell, 2(1): 17‐138. Kim, C.‐J., and Nelson, C. (1999), “State Space Models with Regime Switching”. The MIT Press, Cambridge, MA. Kim, C.‐J., Nelson, C, Piger, J.M. (2001), “The Nature and Sources of the Structural Break in the Volatility of the U.S. Economy,” International Finance Discussion Paper, 707. Kocherlakota, N.R. (2000), "Creating business cycles through credit constraints," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum: 2‐10. Kromendi, R. C., and Meguire, P. G. (1985), “Macroeconomic determinants of growth". Journal of Monetary Economics, 16. Krebs, T. (2007), “Job displacement risk and the cost of business cycles”. American Economic Review 97 (3): 664–686. Krusell, P., Mukoyama, T., Aysegül, S., and Smith, A. A. Jr.(2009), “Revisiting the Welfare Effects of Eliminating Business Cycles”. Review of Economic Dynamics, 12: 393–404. Lo, M.C. and Piger, J.M. (2005), “Is the Response of Output to Monetary Policy Asymmetric? Evidence from a Regime‐Switching Coefficients Model”, Journal of Money, Credit and Banking, 37(5): 865‐886. Dao, M.C. and Loungani, P. (2010), “The Tragedy of Unemployment” Finance and Development, 47(4): 22–25. Lucas, R.E. (1977), “Understanding business cycles. In Stabilization of the Domestic and International Economy”. Carnegie‐Rochester Conference Series on Public Policy, 5. Lucas, R.E. (1985), “Models of Business Cycles”. Yrjo Jahnsson Lectures. Oxford: Basil Blackwell. Martin, P., and Rogers, C.A. (2000), “Long‐Term Growth and Short‐Term Economic Stability”. European Economic Review 44(2): 359–81. McConnell, M. M. and Perez‐Quiros, G. (2000), “Output Fluctuations in the United States: What has changed since the Early 1980s?” American Economic Review, 90(5): 1464‐1476 Mukoyama, T., Sahin, A. (2006), “Costs of business cycles for unskilled workers”. Journal of Monetary Economics 53: 2179–2193. Mulas‐Granados, C. (2005), “Fiscal Adjustments and the Short‐term Trade‐off between Economic Growth and Inequality”. Revista de Economía Publica, 172(1): 61–92. Neftci, S. (1984), “Are economic time series asymmetric over the business cycle?" Journal of Political Economy, 92, 307‐328. Van Nieuwerburgh, S. & Veldkamp, L. (2006)’ "Learning asymmetries in real business cycles". Journal of Monetary Economics, Elsevier, 53(4): 753‐772. Prasad, E.S. (2013), “Distributional Effects of Macroeconomic Policy Choices in Emerging Market Economies” NBER Working Paper 19668. Peersman, G. and Smets, F. (2005), "The Industry Effects of Monetary Policy in the Euro Area". Economic Journal, Royal Economic Society, 115(503): 319‐342 Primiceri, G.E. (2003), “Time Varying Structural Vector Auto regressions and Monetary Policy,” mimeo, Princeton University. Ramey, G., Ramey, V.A. (1991), “Technology commitment and the cost of economic fluctuations”. NBER Working paper No. 3755. Ramey, G. and Ramey, V. A. (1995), “Cross‐country evidence on the link between volatility and growth”. American Economic Review, 85, 1138–51. Ravn, M.O. and Sola, M. (2004), “Asymmetric Effects of Monetary Policy in the US”. Federal Reserve Bank of St. Louis Review, 86(5): 41‐60. Schulhofer‐Wohl, S., (2008), “Heterogeneous risk preferences and the welfare cost of business cycles”. Review of Economic Dynamics, 11 (4): 761–780. Senda, T. (2001), “Asymmetric Effects of Money Supply Shocks and Trend Inflation”. Journal of Money, Credit and Banking, 33: 65‐89. Shleifer, A. (1986), “Implementation Cycles” Journal of Political Economy, 94(6): 1163‐90. Simon, J. (2000), “The Longer Boom”, mimeo, MIT. Sims, C. A. and Zha, T. (2006), "Were There Regime Switches in U.S. Monetary Policy?" American Economic Review, American Economic Association, 96(1): 54‐81. Smeeding, T.M. (2000), “Changing Income Inequality in OECD Countries: updated results from the Luxembourg Income Study (LIS)”. Working Paper 252. Stock, J.H. and Watson, M.W. (2003), “Has the Business Cycle Changed and Why?” NBER Macroeconomics Annual, 17, MIT Press. Van Dijk, M. A. (2013), “The Social Costs of Financial Crises,” Working Paper, Erasmus University. Weise, C. (1999), “The Asymmetric Effects of Monetary Policy: A Nonlinear Vector Auto regression Approach”. Journal of Money Credit and Banking, 31: 85‐108.