Saturday, 17 September 2011

Research Review | 9.16.2011 | Recessions & Rebounds

The Sluggish Recovery from the Great Recession: Why There Is No ‘V’ Rebound This Time
Mark A. Wynne | Federal Reserve Bank of Dallas | Sep 2011
Unlike all other post-World War II recessions, the 2008–09 episode was precipitated by a banking crisis. A number of researchers have shown that downturns associated with banking crises tend to be more severe, and furthermore, in their aftermath, output takes a lot longer to recover.[5] In some cases, the crisis seems to persistently affect the trend rate of growth, while in other cases, the growth path of activity seems to shift down.

Investment Behavior and Policy Implications
Econobrowser | Sep 13
In fact, it is interesting that nonresidential investment has performed better in this recovery from recession as opposed to the preceding recovery from the 2001Q1-2001Q4 recession. One might want to take into account the fact that the recession has been particularly deep. I have normalized on the beginning of the downturn (2008Q2 and 2000Q4) instead of the trough.Hence, taking into account the depth of the recession, one finds that [business fixed investment] is doing better than in the recovery from the previous recession (as well as the previous recession+recovery). It makes one wonder about this argument that great regulatory uncertainty is dampening business enthusiasm for capacity increases. After all, this bivariate logic would imply that regulatory uncertainty was greater in the years after the first Bush recession, relative to now.

Do equity price drops foreshadow recessions?
Vox | Sep 14
There are concerns that the recent sharp drop in equity prices in the advanced economies may signal a rise in the risk of a double-dip recession. This column examines the performance of equity prices as predictors of new recessions in the G7 economies. The findings suggest that equity prices are useful predictors of recessions in most of these countries. Recent drops in equity prices suggest that the probability of a double-dip recession in France, the UK, and the US has increased substantially.

How Can Recessions Be Brought to an End? Effects of Macroeconomic Policy Actions on Durations of Recessions
TOBB University of Economics and Technology | Aug 1, 2011
This paper analyzes how effective macroeconomic policy actions are in ending recessions. We also investigate which structural factors help the country to get out of recessions, in other words experience shorter recessions. We implement survival regression analysis and conclude that expansionary monetary policy significantly decreases durations of recessions whereas fixing the exchange rate does not have an effect on the durations of recessions. Expansionary fiscal policy has undesired effects and decreases the probability that recession will end; in other words, increases the durations of recessions.

Is the Fed Too Obsessed with Inflation? A Proposal for a New FOMC Regime
Macroadvisers | Sep 8
When the Chairman discusses the FOMC's medium-term inflation objective, we suspect that many in the market interpret him as saying that the inflation goal is also a near-term objective. This interpretation undermines the FOMC's ability to ease under current circumstances... A key issue is providing clarity on how tolerant the FOMC is, or should be, about short-run departures of core inflation from 2%. We propose a new policy regime, called monitoring-range inflation targeting (MRIT, pronounced "merit") that provides such clarity.

by: James Picerno


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