Cyclical asymmetry is an economic term that describes any large imbalance in economic factors occurring for purely-cyclical reactions by a market or nation. That may include employment rates, debt retention,

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...

bond strength In chemistry, bond energy (''BE''), also called the mean bond enthalpy or average bond enthalpy is the measure of bond strength in a chemical bond. IUPAC defines bond energy as the average value of the gas-phase bond-dissociation energy (usually a ...

s, or

stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as ...

imbalances.

Types

There are two main types of cyclical asymmetry: fiscal and economic. While there are equivalents to cyclical asymmetries in

investment banking Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...

and stock market transactions, these systems are designed to deal with such things.

Fiscal cyclical asymmetry

Fiscal cyclical asymmetry is based on national or international changes to

fiscal policy In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables ...

as a result of cyclical intervention in money markets or currency exchanges.Timo Teräsvirta. Modelling Nonlinear Economic Relationships Published 1993 Oxford University Press. A simple example is the reaction of the

US Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...

to raise interest rates when the dollar performs too well against other currencies such as the euro and the yen. Since currency exchanges are often predilated on the results of economic changes such as quarterly profit results, Federal Reserve msut be cautious not to overreact or such fiscal changes will actually exacacerbate the situation by making investment in America more attractive than equalizing exchange rates.R. Burdekin, Farrokh K. Langdana. Confidence, Credibility and Macroeconomic Policy: past, present, future. Published 1995 Routledge (UK) When this does occur, it is a cyclical asymmetry.

Economic cyclical asymmetry

Economic cyclical asymmetry is usually based on cyclical trends in national markets, such as the labor market. A simple example is found in the yearly changes in demand for labor. Job markets are, by nature, cyclical, with upswings in certain sectors such as retail near year's end, and in construction during the spring and summer. J. Bradford De Long & Lawrence H. Summers, 1986. "Are Business Cycles Symmetric?," NBER Working Papers 1444, National Bureau of Economic Research, Inc While job creation and destruction as a national whole average usually equalize, when disturbances in the markets occur, the disruptions can cause higher than usual unemployment, which has a negative effect on the economy and causes further economic stress.Ramsey, J.B. & Rothman, P., 1993. "Time Irreversibility and Business Cycle Asymmetry," Working Papers 93-39, C.V. Starr Center for Applied Economics, New York University

Causes

The primary cause of cyclical asymmetry is rapid change in an otherwise regularly cyclical model, and overreactions to counteract such changes. Similar to a man walking across a swaying tightrope, any

economic model In economics, a model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework desig ...

subject to cyclical stressors must find a balance. When it does not, cyclical asymmetries occur.

Effects

Cyclical asymmetry is a form of nonlinear economics and so its effects can be widely varied. However, the primary identification of a cyclical asymmetry is that resources, results, or actions taken to correct a change result in an unequal distribution of a resource or factor, which always leads to a disruption.David Andolfatto. Evidence and Theory on the Cyclical Asymmetry in Unemployment Rate Fluctuations. ''Canadian Journal of Economics'', 1997, vol. 30, issue 3, pages 709–21 In economics, particularly with fiscal policy, poorly chosen compensating actions can result in multiple CAs, spiralling out of control into depression.

The Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...

could be construed{{By whom, date=June 2010 as a result of cyclical asymmetry carried to ridiculous extremes, with most economic and fiscal policy bent to the ideal of mass speculation and investment over rational investment on assets.

References