The Nature of Asymmetry

Abstract

The global financial crisis has been a vivid reminder of how asymmetric economic behaviour is. Recessions in an economy do not have the same pattern as expansions. Expansions are less sharp and last longer. In part they reflect preferences. Macroeconomic policy seeks to encourage and prolong expansions but seeks to make recessions as shallow and short as possible. We thus see asymmetry in both economic behaviour and in economic policy. While the asymmetry in the macroeconomy is very obvious the same asymmetry can be found in microeconomic and sectoral behaviour as well. A well-known example comes from consumption. When incomes rise, all but the poor spend much of the increase but save the rest. The proportions vary according to whether they expect this increase to be one off or enduring. However, if incomes fall by the same amount people resist seeing their consumption fall, particularly if the shock is expected to be temporary. In the longer term consumption will fall as the ability to dissave or borrow is inhibited but the pattern of behaviour is clearly asymmetric. More trivially there are many actions that are not reversible because of experience.