ASYMMETRY IN THE US OUTPUT INFLATION NEXUS

This paper presents empirical evidence supporting the proposition that there is a significant asymmetry in the U.S. output-inflation process . The important policy implication of this asymmetry is that it can be very costly if the economy overheats because this will necessitate a severe tightening in monetary conditions in order to re-establish infl ation control. The empirical results presented in the paper show that the conclusions regarding asymmetry are robust to a number of tests fo r sensitivity to changes in the method used to estimate potential outp ut and in the specification of the Phillips curve.