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The Statistical Behavior of GDP after Financial Crises and Severe Recessions

  • David H. Papell EMAIL logo and Ruxandra Prodan EMAIL logo
Published/Copyright: October 25, 2012
The B.E. Journal of Macroeconomics
From the journal The B.E. Journal of Macroeconomics Volume 12 Issue 3

Abstract

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.

KEYWORDS: : Great Recession; Second Great Contraction; Great Slump; Structural change
*This paper was presented at the Federal Reserve Bank of Boston conference on “Long-Term Effects of the Great Recession,” October 18-19, 2011. We thank our discussants, Jeremy Piger and James Stock, for their comments. Correspondence to: David Papell, tel. (713) 743-3807, email: dpapell@uh.edu, Department of Economics, University of Houston, Houston, TX 77204-5019 Ruxandra Prodan, tel. (713) 743-3836, email: rprodan@uh.edu, Department of Economics, University of Houston, Houston, TX 77204-5019
Published Online: 2012-10-25

© 2012 by Walter de Gruyter GmbH & Co.

Articles in the same Issue

  1. Introduction
  2. A Conference Overview
  3. Session 1
  4. The Statistical Behavior of GDP after Financial Crises and Severe Recessions
  5. First Discussant Comment on “The Statistical Behavior of GDP after Financial Crises and Severe Recessions”
  6. Second Discussant Comment on “The Statistical Behavior of GDP after Financial Crises and Severe Recessions”
  7. Session 2
  8. Shifting Confidence in Homeownership: The Great Recession
  9. First Discussant Comment on “Shifting Confidence in Homeownership: The Great Recession”
  10. Second Discussant Comment on “Shifting Confidence in Homeownership: The Great Recession”
  11. Session 3
  12. Potential Effects of the Great Recession on the U.S. Labor Market
  13. First Discussant Comment on “Potential Effects of the Great Recession on the U.S. Labor Market”
  14. Second Discussant Comment on “Potential Effects of the Great Recession on the U.S. Labor Market”
  15. Session 4
  16. The Future of U.S. Housing Finance Reform
  17. First Discussant Comment on “The Future of U.S. Housing Finance Reform”
  18. Second Discussant Comment on “The Future of U.S. Housing Finance Reform”
  19. Session 5
  20. Fiscal Policy as a Stabilization Tool
  21. First Discussant Comment on “Fiscal Policy as a Stabilization Tool”
  22. Second Discussant Comment on “Fiscal Policy as a Stabilization Tool”
  23. Will the Federal Reserve Be Able to Serve as the Lender of Last Resort in the Next Financial Crisis? A Panel Discussion
  24. First Panelist Remarks: “Will the Federal Reserve Be Able to Serve as the Lender of Last Resort in the Next Financial Crisis?”
  25. Second Panelist Remarks: “Will the Federal Reserve Be Able to Serve as the Lender of Last Resort in the Next Financial Crisis?”
  26. Third Panelist Remarks: “Will the Federal Reserve Be Able to Serve as the Lender of Last Resort in the Next Financial Crisis?”
  27. Speeches
  28. Global Financial Intermediaries: Lessons and Continuing Challenges
  29. The Effects of the Great Recession on Central Bank Doctrine and Practice
https://doi.org/10.1515/1935-1690.101
Keywords for this article
Great Recession; Second Great Contraction; Great Slump; Structural change

Articles in the same Issue

  1. Introduction
  2. A Conference Overview
  3. Session 1
  4. The Statistical Behavior of GDP after Financial Crises and Severe Recessions
  5. First Discussant Comment on “The Statistical Behavior of GDP after Financial Crises and Severe Recessions”
  6. Second Discussant Comment on “The Statistical Behavior of GDP after Financial Crises and Severe Recessions”
  7. Session 2
  8. Shifting Confidence in Homeownership: The Great Recession
  9. First Discussant Comment on “Shifting Confidence in Homeownership: The Great Recession”
  10. Second Discussant Comment on “Shifting Confidence in Homeownership: The Great Recession”
  11. Session 3
  12. Potential Effects of the Great Recession on the U.S. Labor Market
  13. First Discussant Comment on “Potential Effects of the Great Recession on the U.S. Labor Market”
  14. Second Discussant Comment on “Potential Effects of the Great Recession on the U.S. Labor Market”
  15. Session 4
  16. The Future of U.S. Housing Finance Reform
  17. First Discussant Comment on “The Future of U.S. Housing Finance Reform”
  18. Second Discussant Comment on “The Future of U.S. Housing Finance Reform”
  19. Session 5
  20. Fiscal Policy as a Stabilization Tool
  21. First Discussant Comment on “Fiscal Policy as a Stabilization Tool”
  22. Second Discussant Comment on “Fiscal Policy as a Stabilization Tool”
  23. Will the Federal Reserve Be Able to Serve as the Lender of Last Resort in the Next Financial Crisis? A Panel Discussion
  24. First Panelist Remarks: “Will the Federal Reserve Be Able to Serve as the Lender of Last Resort in the Next Financial Crisis?”
  25. Second Panelist Remarks: “Will the Federal Reserve Be Able to Serve as the Lender of Last Resort in the Next Financial Crisis?”
  26. Third Panelist Remarks: “Will the Federal Reserve Be Able to Serve as the Lender of Last Resort in the Next Financial Crisis?”
  27. Speeches
  28. Global Financial Intermediaries: Lessons and Continuing Challenges
  29. The Effects of the Great Recession on Central Bank Doctrine and Practice
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