Is Business Cycle Asymmetry Intrinsic in Industrialized Economies?

58 Pages Posted: 7 Oct 2016 Last revised: 18 Jun 2018

See all articles by James Morley

James Morley

University of Sydney

Irina Panovska

University of Texas at Dallas

Date Written: June 7, 2018


We consider a model-averaged forecast-based estimate of the output gap to measure economic slack in ten industrialized economies. Our measure takes changes in the long-run growth rate into account and, by addressing model uncertainty using equal weights on different forecast-based estimates, is robust to different assumptions about the underlying structure of the economy. For all ten countries in the sample, we find that the estimated output gap has much larger negative movements during recessions than positive movements in expansions, suggesting business cycle asymmetry is an intrinsic characteristic of industrialized economies. Furthermore, the estimated output gap is always strongly negatively correlated with future output growth and unemployment and positively correlated with capacity utilization. It also implies a convex Phillips Curve in many cases. The model-averaged output gap is reliable in real time in the sense of being subject to relatively small revisions.

Keywords: output gap; model averaging; Markov switching; business cycle asymmetry; convex Phillips Curve

JEL Classification: E32, E37

Suggested Citation

Morley, James and Panovska, Irina, Is Business Cycle Asymmetry Intrinsic in Industrialized Economies? (June 7, 2018). Available at SSRN: or

James Morley (Contact Author)

University of Sydney ( email )

Rm 370 Merewether (H04)
Sydney, NSW 2006 2008

HOME PAGE: http://

Irina Panovska

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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