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International Evidence on Recovery from Recessions

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Author Info

  • Valerie Cerra
  • Sweta Chaman Saxena
  • Ugo Panizza

Abstract

Although negative shocks have persistent effects on output on average, this paper shows that macroeconomic policies and the structure of the economy can influence the speed of recovery and mitigate the persistence of the shock. Indeed, monetary and fiscal stimulus and foreign aid can spur a rebound, with impacts that are asymmetrically stronger than in nonrecovery years. Real depreciation and the exchange rate regime also have asymmetric growth effects in a recovery year relative to other years of expansion. Recoveries are more sluggish in open economies, partly because fiscal policy is less effective than in closed economies.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/183.

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Length: 30
Date of creation: 01 Aug 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/183

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Related research

Keywords: Economic recovery; Business cycles; Banking crisis; Concessional aid; Developed countries; Economic growth; Economic recession; Emerging markets; Exchange rate regimes; External shocks; Real effective exchange rates; Trade policy;

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References

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  1. Christina D. Romer & David H. Romer, 1990. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Working Papers 2966, National Bureau of Economic Research, Inc.
  2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  3. Lo, Ming Chien & Piger, Jeremy, 2005. "Is the Response of Output to Monetary Policy Asymmetric? Evidence from a Regime-Switching Coefficients Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 865-86, October.
  4. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
  5. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  6. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  7. Alejandro Izquierdo & Ernesto Talvi & Guillermo A Calvo, 2006. "Phoenix miracles in emerging markets: recovering without credit from systemic financial crises," BIS Working Papers 221, Bank for International Settlements.
  8. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
  9. Jeremy Piger & James Morley & Chang-Jin Kim, 2005. "Nonlinearity and the permanent effects of recessions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 291-309.
  10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  11. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  12. Ricardo Hausmann & Francisco Rodríguez & Rodrigo Wagner, 2006. "Growth Collapses," Wesleyan Economics Working Papers 2006-024, Wesleyan University, Department of Economics.
  13. Valerie Cerra & Sweta Chaman Saxena, 2007. "Growth dynamics: the myth of economic recovery," BIS Working Papers 226, Bank for International Settlements.
  14. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
  15. Wesley Clair Mitchell, 1927. "Business Cycles: The Problem and Its Setting," NBER Books, National Bureau of Economic Research, Inc, number mitc27-1.
  16. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  17. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  18. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications 4508, Inter-American Development Bank, Research Department.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The growth problem
    by chris dillow in Stumbling and Mumbling on 2011-08-07 11:01:20
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Cited by:
  1. Mathilde Maurel & Gunther Schnabl, 2011. "Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00565231, HAL.
  2. Gaston Gelos & Robert Rennhack & James P Walsh & Pelin Berkmen, 2009. "The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact," IMF Working Papers 09/280, International Monetary Fund.
  3. Davide Furceri & Aleksandra Zdzienicka-Durand, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," Post-Print halshs-00491089, HAL.
  4. Pedro Conceição & Sebastian Levine, 2011. "The African Moment: On the Brink of a Development Breakthrough," Working Papers 2011-001, United Nations Development Programme, Regional Bureau for Africa (UNDP/RBA).
  5. Julien Allard & Rodolphe Blavy, 2011. "Market Phoenixes and Banking Ducks Are Recoveries Faster in Market-Based Financial Systems?," IMF Working Papers 11/213, International Monetary Fund.
  6. Olga Arratibel & Davide Furceri & Reiner Martin & Aleksandra Zdzienicka-Durand, 2011. "The Effect of Nominal Exchange Rate Volatility on Real Macroeconomic Performance in the CEE Countries," Post-Print halshs-00456606, HAL.
  7. Agnello, L. & Furceri, D. & R.M, Sousa., 2011. "Fiscal Policy Discretion, Private Spending, and Crisis Episodes," Working papers 354, Banque de France.
  8. Furceri, Davide & Zdzienicka, Aleksandra, 2012. "Banking Crises and Short and Medium Term Output Losses in Emerging and Developing Countries: The Role of Structural and Policy Variables," World Development, Elsevier, vol. 40(12), pages 2369-2378.
  9. Dan Corry & Anna Valero & John Van Reenen, 2011. "UK economic performance since 1997: growth, productivity and jobs," LSE Research Online Documents on Economics 47521, London School of Economics and Political Science, LSE Library.
  10. Francesco Grigoli & Dalia Hakura, 2010. "Recoveries in the Middle East, North Africa, and Pakistan: Have Macroeconomic Policies Been Effective?," IMF Working Papers 10/122, International Monetary Fund.
  11. Bernard Fingleton & Harry Garretsen & Ron Martin, 2012. "Recessionary Shocks And Regional Employment: Evidence On The Resilience Of U.K. Regions," Journal of Regional Science, Wiley Blackwell, vol. 52(1), pages 109-133, 02.

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