Supply-Side Asymmetry: Evidence from the Middle East.

The paper investigates asymmetry in the slope of the aggregate supply curve in the face of aggregate demand shocks using annual data for ten countries of the Middle East. The evidence is contrasted to a sample of developing countries and a sample of more developed countries. The empirical evidence is consistent with a steeper supply curve in the face of positive demand shocks compared to negative shocks for many countries. For these countries, demand fluctuations are consistent with a net positive contribution to trend price inflation and a net negative contribution to trend output growth. These results challenge the long-term neutrality of demand fluctuations.