Full Title: Asymmetries in Business Cycles and the Role of Oil Prices
Author(s): Betty C. Daniel, Christian M. Hafner, Hans Manner, and L'eopold Simar
Publisher(s): The University at Albany
Publication Date: October 1, 2012
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Description (excerpt):
We study business cycle asymmetries in a sample of eleven OECD countries by allowing total factor productivity to be composed of a symmetric innovation, as in Dynamic Stochastic General Equilibrium Models, and a negative asymmetric one, as first proposed by Barro (2006) to model rare disasters. We adapt Stochastic Frontier Analysis from its standard micro applications to estimate whether or not innovations have negative asymmetries. Likelihood ratio statistics and variance ratios imply that all countries with net energy imports have significant negative asymmetries, while other countries do not. We present a theoretical model in which capacity utilization can interact with concavity in production to produce asymmetries for large oil price increases, but not for small ones. We find that conditioning on Hamilton’s (2011) net oil price increase variable reduces, but does not eliminate, evidence of negative asymmetries for net energy importers. Additional conditioning on financial crises, as suggested by Barro (2006), completely eliminates evidence of negative asymmetry.