Asymmetry and duration dependence in Australian GDP and unemployment

The per iodic structure of business cycles suggests that significant asymme tries are present over different phases of the cycle. This paper uses marko v regime-switching models with fixed and duration dependent transition prob abilities to directly model expansions, contractions and durations in Austr alian GDP growth and unemployment growth. Evidence is found of significant asymmetry in growth rates across expansions and contractions for both serie s. GDP contractions exhibit duration dependence implying that as output rec essions age the likelihood of switching into an expansion phase increases. Unemployment growth does not exhibit duration dependence in either phase. E vidence is also presented that non-linearities in unemployment growth are w ell explained by the asymmetries in the GDP growth cycle. The analysis sugg ests that recessions are periods of rapid and intense job destruction, that Australian unemployment tends to ratchet up in recessionary periods and, i n contrast to US and UK studies, that shocks to Australian unemployment gro wth are more persistent in recessions than expansions. [E37 C5 C41].