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High-growth Recoveries, Inventories and the Great Moderation

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  • Maximo Camacho

    ()
    (Universidad de Murcia)

  • Gabriel Perez-Quiros

    ()
    (Banco de España)

  • Hugo Rodríguez Mendizábal

    ()
    (Instituto de Análisis Económico (CSIC))

Abstract

We present evidence about the loss of the so-called "plucking effect", that is, a high-growth phase of the cycle typically observed at the end of recessions. This result matches the belief, presented informally by different authors, that recession may have now permanent effects, or recession have now an L shape versus old-time recessions that always had a V shape. We also show that the loss of the "plucking effect" can explain part of the Great Moderation. We postulate that these two phenomena may be due to changes in inventory management brought about by improvements in information and communications technologies.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/09/Fic/dt0917e.pdf
File Function: First version, August 2009
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0917.

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Length: 44 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:bde:wpaper:0917

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Keywords: Business cycle features; Great Moderation; High-growth recovery;

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  1. Camacho Maximo & Perez Quiros Gabriel, 2007. "Jump-and-Rest Effect of U.S. Business Cycles," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 11(4), pages 1-39, December.
  2. Shaghil Ahmed & Andrew Levin & Beth Anne Wilson, 2004. "Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck?," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 824-832, August.
  3. John Y. Campbell & N. Gregory Mankiw, 1986. "Are Output Fluctuations Transitory?," NBER Working Papers 1916, National Bureau of Economic Research, Inc.
  4. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(1), pages 147-180, February.
  5. Stacey L. Schreft & Aarti Singh & Ashley Hodgson, 2005. "Jobless recoveries and the wait-and-see hypothesis," Economic Review, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Q IV, pages 81-99.
  6. Dynan, Karen E. & Elmendorf, Douglas W. & Sichel, Daniel E., 2006. "Can financial innovation help to explain the reduced volatility of economic activity?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(1), pages 123-150, January.
  7. Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports, Federal Reserve Bank of New York 41, Federal Reserve Bank of New York.
  8. Daniel E. Sichel, 1992. "Inventories and the three phases of the business cycle," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 128, Board of Governors of the Federal Reserve System (U.S.).
  9. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1164, Econometric Society.
  10. Todd E. Clark, 2009. "Is the Great Moderation over? an empirical analysis," Economic Review, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-42.
  11. Kim, C-J & Nelson, C-R, 1997. "Friedman's Plucking Model of Business Fluctuations : Tests and Estimates of Permanent and Transitory Components," Working Papers, University of Washington, Department of Economics 97-06, University of Washington, Department of Economics.
  12. Ana Maria Herrero & Elena Pesavento, 2003. "The Decline in U.S. Output Volatility: Structural Changes and Inventory Investment," Emory Economics, Department of Economics, Emory University (Atlanta) 0301, Department of Economics, Emory University (Atlanta).
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  15. Bils, M. & Kahn, J.A., 1996. "What Inventory Behavior Tells Us About Business Cycles," RCER Working Papers 428, University of Rochester - Center for Economic Research (RCER).
  16. Camacho, Maximo & Perez-Quiros, Gabriel & Saiz, Lorena, 2008. "Do European business cycles look like one?," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(7), pages 2165-2190, July.
  17. Friedman, Milton, 1993. "The "Plucking Model" of Business Fluctuations Revisited," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 31(2), pages 171-77, April.
  18. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 183-202.
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  20. Chang-Jin Kim & Christian J. Murray, 2002. "Permanent and transitory components of recessions," Empirical Economics, Springer, Springer, vol. 27(2), pages 163-183.
  21. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 22(4), pages 155-80, Fall.
  22. Boldin Michael D., 1996. "A Check on the Robustness of Hamilton's Markov Switching Model Approach to the Economic Analysis of the Business Cycle," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 1(1), pages 1-14, April.
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Cited by:
  1. Bec, Frédérique & Bessec, Marie, 2013. "Inventory Investment Dynamics and Recoveries: A Comparison of Manufacturing and Retail Trade Sectors," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/11777, Paris Dauphine University.

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