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Most Downloaded Articles
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- Who Gets the Credit? And Does It Matter? Household vs. Firm Lending Across Countries by Beck, Thorsten/ Büyükkarabacak, Berrak/ Rioja, Felix K. and Valev, Neven T.
- Monetary and Macroprudential Policy Rules in a Model with House Price Booms by Kannan, Prakash/ Rabanal, Pau and Scott, Alasdair M.
- Is Discretionary Fiscal Policy in Japan Effective? by Rafiq, Sohrab
- In search of lost time: the neoclassical synthesis by De Vroey, Michel and Duarte, Pedro Garcia
The Statistical Behavior of GDP after Financial Crises and Severe Recessions
1University of Houston
2University of Houston
Citation Information: . Volume 12, Issue 3, Pages –, ISSN (Online) 1935-1690, ISSN (Print) , DOI: 10.1515/1935-1690.101, October 2012
- Published Online:
Do severe recessions associated with financial crises cause permanent reductions in potential GDP? If the economy eventually returns to its trend, does the return take longer than the return following recessions not associated with financial crises? We develop a statistical methodology appropriate for identifying and analyzing slumps, episodes that combine a contraction and an expansion and end when the economy returns to its trend growth rate. We analyze the Great Depression for the United States, severe and milder financial crises for advanced economies, severe financial crises for emerging markets, and postwar recessions for the United States and other advanced economies. The preponderance of evidence for episodes comparable with the current U.S. slump is that, while potential GDP is eventually restored, the slumps last an average of nine years. If this historical pattern holds, the Great Recession that started in 2007:Q4 will not ultimately affect potential GDP, but the Great Slump is not yet half over.