Brexit has raised the possibility of a recession on both sides of the Atlantic. Unable to use traditional remedies like monetary or fiscal policy stimulus, policymakers may consider automatic fiscal stabilisers. This column examines the impact of automatic stabilisers through social insurance on the business cycle, and how its impact can be used to mitigate recession. Unemployment insurance or food stamps would be better than progressive taxes at stimulating aggregate demand. The main economic channels policymakers must consider are those related to risk and precautionary savings.
Alisdair McKay, Ricardo Reis, 14 July 2016
Andrew Bernard, Toshihiro Okubo, 23 April 2016
Recent research has found that certain firms increase their innovative activity during periods of falling demand. This column investigates this puzzle by analysing how Japanese firms adjust their product mix over the business cycle. During transitions from recession to expansion, firm-level product churning – that is, simultaneously adding and dropping products – increases by 25%. The findings lend support to the ‘trapped factor’ model, in which negative demand shocks see the redeployment of underemployed resources towards innovation processes.
Janet Currie, 15 January 2016
Studies of the effects of economic fluctuations on health have come to wildly different conclusions. This may be because the effects are different for different groups. Using US data, this column looks at the health consequences of the Great Recession on mothers, a sub-population that has thus far been largely neglected in the literature. Increases in unemployment are found to have large negative health effects and to increase incidences of smoking and substance abuse among mothers. These effects appear to be concentrated on disadvantaged groups such as minorities, and point to short- and long-term consequences for their children.
Manuel Funke, Moritz Schularick, Christoph Trebesch, 21 November 2015
Recent events in Europe provide ample evidence that the political aftershocks of financial crises can be severe. This column uses a new dataset that covers elections and crises in 20 advanced economies going back to 1870 to systematically study the political aftermath of financial crises. Far-right parties are the biggest beneficiaries of financial crises, while the fractionalisation of parliaments complicates post-crisis governance. These effects are not observed following normal recessions or severe non-financial macroeconomic shocks.
Brian Bell, Anna Bindler, Stephen Machin, 04 March 2015
Recessions can lead to an increase in youth unemployment, which could later negatively affect labour market outcomes. This column explores the effect of recessions on criminal activity. The findings indicate a substantial effect on initiating and forming youth careers. There is initially strong and eventually long-lasting detrimental effect of entering the labour market during a recession for individuals at the threshold of criminal activity. These effects are economically substantial and potentially more disturbing than short-run effects.
Jean Pisani-Ferry, 07 November 2014
A triple-dip recession in the Eurozone is now a distinct possibility. This column argues that additional monetary stimulus is unlikely to be effective, that the scope for further fiscal stimulus is limited, and that some structural reforms may actually hurt growth in the short run by adding to disinflationary pressures in a liquidity trap. The author advocates using tax incentives and tighter regulations to encourage firms to replace environmentally inefficient capital.
Jeffrey Frankel, 11 August 2014
The Italian economy is reported to have slipped back into recession in the first part of 2014. This characterisation is based on a criterion for a recession standard in Europe – two successive quarters of negative growth. However, there are other criteria to define a recession. US standards would treat Italy’s economic situation as one, six-year-long recession. Whereas one cannot say whether one criterion is superior to the other, announcing a recession has further implications.
David Berger, Joseph Vavra, 03 July 2014
Various stimulus programmes have been implemented in a response to the decline in consumption of durables since the Recession. This column argues that standard analysis of such programmes could be overstating their effectiveness. Aggregate durable spending is much less responsive to stimulus during recessions. Microeconomic frictions lead households to adjust their durable holdings less frequently.
Philippe Weil, 20 June 2014
The CEPR Business Cycle Dating Committee recently concluded that there is not yet enough evidence to call a business cycle trough in the Eurozone. Instead, the committee has announced a 'prolonged pause' in the recession. This Vox Talk discusses the possible directions that this situation could lead to and questions whether the Great Recession has harmed the Eurozone’s long-term growth prospects to the extent that meagre growth could become the 'new normal'.
CEPR CEPR Business Cycle Dating Committee, 17 June 2014
The simplest business cycle dating algorithm declares recessions over after two consecutive quarters of positive GDP growth. By that metric, the Eurozone recession has been over since 2013Q1. This column argues that growth and improvements in the labour market have been so anaemic that it is too early to call the end of the Eurozone recession. Indeed, if this is what an expansion looks like, then the state of the Eurozone economy might be even worse than economists feared.
Paul Beaudry, Dana Galizia, Franck Portier, 01 June 2014
Hayek viewed recessions as working out excessive investments; Keynes viewed them as demand shortages. This column argues that they may not be as mutually exclusive as many think. Recessions may reflect periods of liquidation but this may be associated with inefficient adjustment involving unemployment and precautionary savings. Stimulative policy may be desirable even if it delays the full recovery.
Barbara Petrongolo, 27 April 2014
Long-term unemployment in the UK increased substantially after the recent recession. Many policy interventions have attempted to address this problem. The UK’s long-term unemployed face tougher requirements in return for their benefits – community work, training programmes, or daily visits to the Jobcentre. This column tries to assess the likely success of the UK government’s strategy by surveying the effectiveness of the ‘sticks’ and ‘carrots’ of active labour market policies.
Antonio Fatás, Ilian Mihov, 14 August 2013
The last recession in the US ended in June 2009. Yet, three years on, unemployment remains high. This column argues that we need to better understand how business cycles of recession and expansion work. Detailed evidence from the US suggests that recoveries are not simply mirror images of recessions. Because of its policy relevance, economists and policymakers must acknowledge that the pattern of recession/recovery has significantly changed over the last half century.
Laurence Kotlikoff, 16 December 2012
A ‘self-fulfilling recession’ is a long-established idea in economics. This column argues that the US’s economic malaise continues to be caused by leaders’ hysteria rather than by actual engrained economic problems. Obama and Congress need to stop scaring the nation about the ‘fiscal cliff’ because, ultimately, they are coordinating expectations on there being a recession. Tackling the right policies now, and sending out the right message, will help more than hysteria.
Lucrezia Reichlin, Domenico Giannone, Jasper McMahon, Saverio Simonelli, 02 May 2012
According to official statistics, the UK and Europe are heading for recession, while the US is recovering. This has led some to suggest that European economies are moving in the opposite direction to the US. This column, written by the co-founders of Now-Casting, presents new now-casting estimates that put Europe and the US even further apart.
Douglas Irwin, 11 September 2011
The swift policy response to the recent financial crisis helped the world economy avoid a replay of the Great Depression of 1929-32. But can we avoid a replay of 1937-38? With the world economy weakening once again, this column addresses the question with a renewed urgency and comes up with an oft-overlooked explanation – the Treasury Department's decision to sterilise all gold inflows starting in December 1936.
Erik Hurst, Loukas Karabarbounis, Mark Aguiar, 17 August 2011
When jobs are scarce, what else is there to do? This column looks at data from the American Time Use Survey (ATUS) and finds that roughly 30% to 40% of time not spent working is put towards increased “home” production, 30% of time is allocated to increased sleep time and increased television watching, while other leisure activities make up a further 20% of the foregone market work hours.
Harald Uhlig, 08 October 2010
CEPR’s Euro Area Business Cycle Dating Committee has announced that the recession that began in the first quarter of 2008 came to an end in the second quarter of 2009. Harald Uhlig of the University of Chicago, who chairs the committee, talks to Romesh Vaitilingam about how this recession compares with previous recessions and with the US recession, and about the components of GDP that are driving recovery. The interview was recorded in a telephone press conference on 4 October 2010.
Harald Uhlig, 04 October 2010
Identifying recessions is crucial to guiding policymaking. This column reports the findings of the CEPR Business Cycle Dating Committee for the Eurozone for the last recession. It reports that the trough in economic activity occurred in the second quarter of 2009, marking the end of the recession that began in the first quarter of 2008. The recession lasted 6 quarters and the total decline in output from peak to trough was 5.5%. April 2009 marked a clear trough in industrial production, following the peak in January 2008.
Roger Farmer, 05 October 2009
Has the US recession already ended? This column says that it very likely has, based on evidence from the last fourteen recessions. It predicts that the NBER will declare that the recession ended in May 2009. But that doesn't rule out the dangers of a double dip or jobless recovery.