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The universal shape of economic recession and recovery after a shock

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Author Info
Challet, Damien
Solomon, Sorin
Yaari, Gur
Abstract

We show that a simple and intuitive three-parameter equation fits remarkably well the evolution of the gross domestic product (GDP) in current and constant dollars of many countries during times of recession and recovery. We then argue that this equation is the response function of the economy to isolated shocks, hence that it can be used to detect large and small shocks, including those which do not lead to a recession; we also discuss its predictive power. Finally, a two-sector toy model of recession and recovery illustrates how the severity and length of recession depends on the dynamics of transfer rate between the growing and failing parts of the economy. --

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File URL: http://www.economics-ejournal.org/economics/journalarticles/2009-36
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Publisher Info
Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 3 (2009)
Issue (Month): 36 ()
Pages: 1-24
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Handle: RePEc:zbw:ifweej:200936

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Related research
Keywords: Economic growth; GDP; shocks; response function; modelling; prediction; optimal policy;

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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This page was last updated on 2009-12-8.

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