Business Cycle Asymmetry Via Occasionally Binding International Borrowing Constraints
9 Pages Posted: 25 Oct 2010 Last revised: 8 Jan 2014
Date Written: October 25, 2010
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: Suggested Citation