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The Cause of the Great Recession: What Caused the Downward Shift of the GDP Trend in the United States?

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  • Harashima, Taiji

Abstract

The trend of the gross domestic product (GDP) of the United States clearly shifted downward after the Great Recession of 2008. This shift indicates that the cause of the Great Recession was a change in a fundamental factor that had the potential to significantly affect the steady state. In this paper, I examine three possible causes for the shift: a change in technology, a change in preferences, and a sudden malfunctioning of the price mechanism. I conclude that an upward shift of the expected rate of time preference is the most likely cause of the Great Recession. In addition, I estimated the yearly expected rate of time preference of the United States and found that the expected rate of time preference shifted upwards by 1–2 percentage points when the Great Recession began. I also estimated the expected rate of time preference for Japan and found that the rate increased prior to the extended period of economic stagnation during the 1990s.

Suggested Citation

  • Harashima, Taiji, 2016. "The Cause of the Great Recession: What Caused the Downward Shift of the GDP Trend in the United States?," MPRA Paper 69215, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:69215
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    Cited by:

    1. Harashima, Taiji, 2017. "Should a Government Fiscally Intervene in a Recession and, If So, How?," MPRA Paper 78053, University Library of Munich, Germany.
    2. Harashima, Taiji, 2016. "The Impending Long March of the Chinese Economy," MPRA Paper 73275, University Library of Munich, Germany.
    3. Harashima, Taiji, 2022. "A Household’s Preferences Vary Depending on Whether Incomes Are Permanent or Temporary: A Solution to the Time-Inconsistency Problem and Equity-Premium Puzzle," MPRA Paper 114762, University Library of Munich, Germany.
    4. Harashima, Taiji, 2019. "A Pareto Inefficient Path to Steady State in Recession," MPRA Paper 93216, University Library of Munich, Germany.

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    More about this item

    Keywords

    The Great Recession; Time preference; Economic fluctuations;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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