Building on previous nonlinear time-series models we further examine t
he form of nonlinearity in US output. We develop a model of US output
that allows for floor and ceiling effects to alter the dynamics of out
put growth. The model estimated on post-Korean War quarterly data, dis
plays features similar to nonlinear trade cycle models of the 1940s an
d 1950s. Thus, as predicted by many of the earlier theoretical models,
our empirical results suggest that the turning points of the business
cycle provide new initial conditions for the ensuing growth process.
We also find important asymmetries in the responses of output to posit
ive and negative shocks. This history and shock dependence property is
not present in linear or approximately linear models of the type that
arise in the standard implementations of Real Business Cycle theory.