  This paper examines the dynamic interaction between falling and rising
markets for both the real and the financial sectors of the largest economy in
the world using asymmetric causality tests. These tests require that each
underlying variable in the model be transformed into partial sums of the
positive and negative components. The positive components represent the rising
markets and the negative components embody the falling markets. The sample
period covers some part of the COVID19 pandemic. Since the data is non normal
and the volatility is time varying, the bootstrap simulations with leverage
adjustments are used in order to create reliable critical values when causality
tests are conducted. The results of the asymmetric causality tests disclose
that the bear markets are causing the recessions as well as the bull markets
are causing the economic expansions. The causal effect of bull markets on
economic expansions is higher compared to the causal effect of bear markets on
economic recessions. In addition, it is found that economic expansions cause
bull markets but recessions do not cause bear markets. Thus, the policies that
remedy the falling financial markets can also help the economy when it is in a
recession.
