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Countercyclical policy and the speed of recovery after recessions

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  • Francis, Neville
  • Jackson, Laura E.
  • Owyang, Michael T.

Abstract

The nature of the business cycle appears to have changed. Prior to the 1990s, recoveries from recessions were quick and steep; after the past three recessions, however, recoveries were weak and prolonged. We consider the effect of a number of countercyclical policies intended to shorten recessions and speed recoveries. Our innovation is to analyze the duration of the recoveries of various U.S. states, which gives us a cross-section of both state- and national-level policies. Because we study multiple recessions for the same state and multiple states for the same recession, we can control for differences in the economic conditions preceding recessions and the causes of the recessions when evaluating various policies. We find that expansionary monetary policy at the national level helps to stimulate the exit of individual states from recession. We also find certain factors extend expected recovery times: other states in the same region suffering from recession around the same time, the length of the preceding recession, and shocks to oil prices at the peak.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2013-032.

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Length: 33 pages
Date of creation: 2013
Date of revision: 01 Jan 2014
Handle: RePEc:fip:fedlwp:2013-032

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Keywords: Business cycles; Recessions;

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  8. Michael T. Owyang & Jeremy Piger & Howard J. Wall, 2005. "Business Cycle Phases in U.S. States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 604-616, November.
  9. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, octubre-d.
  10. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-66, September.
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  12. Stacey L. Schreft & Aarti Singh, 2003. "A closer look at jobless recoveries," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 45-73.
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