Fluctuations in Confidence and Asymmetric Business Cycles

29 Pages Posted: 5 Aug 1999

See all articles by Simon Potter

Simon Potter

Peter G. Peterson Institute for International Economics

Date Written: February 1999

Abstract

There is now a great deal of empirical evidence that business cycle fluctuations contain asymmetries. The asymmetries found in post-war U.S. data are inconsistent with the behavior of the U.S. economy in the Great Depression. In a model where business cycle asymmetries are produced by rational fluctuations in the confidence of investors, I examine whether this inconsistency can be explained by differences in government policy. It is found that the ineptness of government intervention during the Great Depression in reducing the confidence of investors rather than the success of post-war stabilization policy in raising confidence is the most likely explanation.

Keywords: asymmetry, confidence, business cycle, great depression

JEL Classification: C22, E32

Suggested Citation

Potter, Simon, Fluctuations in Confidence and Asymmetric Business Cycles (February 1999). FRB of New York Staff Report No. 66, Available at SSRN: https://ssrn.com/abstract=163170 or http://dx.doi.org/10.2139/ssrn.163170

Simon Potter (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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