Business Cycles, Economic Crises, and the Poor : Testing for Asymmetric Effects
The author examines whether output contraction associated with cyclical output fluctuations and economic crises have an asymmetric effect on poverty. He identifies four potential sources of asymmetry: expectations and cofident factors, credit ratio...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2001/10/1615091/business-cycles-economic-crises-poor-testing-asymmetric-effects http://hdl.handle.net/10986/19502 |
| Summary: | The author examines whether output
contraction associated with cyclical output fluctuations and
economic crises have an asymmetric effect on poverty. He
identifies four potential sources of asymmetry: expectations
and cofident factors, credit rationing at the firm level
(induced by either adeverse selection problems or negative
shocks to net worth), borrowing constraints at the household
level, and the "labor hoarding" hypothesis. He
also identifies some testable implications of these
alternative explanations. The author then proposes a vector
autoregression technique (involving the detrended components
of real output, the unemployment rate, real wages, and the
poverty rate) to test whether the initial cyclical position
of the economy, and the size of the initial drop in the
output gap in a downturn, matter in assessing the extent to
which output shocks affect poverty. He applies the technique
to Brazil, using annual data for 1981-99. The results
indicate that poverty responds asymmetrically to output
shocks, showing less sensitivity when the economy is
initially in a downturn. |
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