The Scope and Methodology of Economic and Financial Asymmetries

This paper focuses on economic and financial asymmetries by addressing methodological issues related to the meaning of economic asymmetries and how such asymmetries arise in markets, general equilibrium modeling and in national and global economies. Historically, the methodology of modeling asymmetric information began with Akerlof’s celebrated model of “lemons” and while these asymmetries were quickly adopted in microeconomics, asymmetries in macroeconomics, business cycles and related economic policies modified the concept of asymmetries to highlight the importance of unequal magnitudes of responses among economic and financial variables. We discuss numerous topics that illustrate the significance of economic and financial asymmetries in actual economies or their modeling to establish their centrality in economic analysis and policy. These topics include general equilibrium theory, asymmetric information, delegated asset management, labor markets and involuntary unemployment, financial and capital markets, financial crises, asymmetries in intertemporal macroeconomics, international macroeconomics, business cycles, human capital and growth, environmental and energy markets, and econometric modeling