Fluctuations in Confidence and Asymmetric Business Cycles
29 Pages Posted: 5 Aug 1999
Date Written: February 1999
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: Suggested Citation