Business Cycle Asymmetry Via Occasionally Binding International Borrowing Constraints

9 Pages Posted: 25 Oct 2010 Last revised: 8 Jan 2014

See all articles by Shuyun May Li

Shuyun May Li

University of Melbourne

Scott J. Dressler

Villanova University - School of Business - Economics

Date Written: October 25, 2010

Abstract

This paper illustrates how occasionally binding credit constraints can be quantitatively important to delivering business-cycle asymmetries. An empirical exercise suggests that countries display some business-cycles asymmetries, and an open-economy real business-cycle model is assessed where an international borrowing constraint binds occasionally. In the model, downward movements with a slack constraint are sharper and quicker than upward movements with a binding constraint, and this can deliver asymmetry over the business cycle. The model is calibrated to Canadian data and suggests that a necessary ingredient for asymmetry is a high initial level of foreign debt.

Keywords: Business Cycle Asymmetry, Deepness, Steepness, Small Open Economy, International Borrowing Constraints

JEL Classification: E32, E44

Suggested Citation

Li, Shuyun May and Dressler, Scott J., Business Cycle Asymmetry Via Occasionally Binding International Borrowing Constraints (October 25, 2010). Journal of Macroeconomics, 33(1) 2011, pp. 33-41., Available at SSRN: https://ssrn.com/abstract=1697878

Shuyun May Li (Contact Author)

University of Melbourne ( email )

Melbourne, 3010
Australia

Scott J. Dressler

Villanova University - School of Business - Economics ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States

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