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The Universal Shape of Economic Recession and Recovery after a Shock

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  • 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 the times of recession and recovery. We then argue that it can be used to detect shocks and discuss its predictive power. Finally, a two-sector theoretical 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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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2009-6.

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Date of creation: 2009
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Handle: RePEc:zbw:ifwedp:7485

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Keywords: Economic growth; transition economies; GDP; modelling; prediction; optimal policy;

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  1. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  2. G. Yaari & A. Nowak & K. Rakocy & S. Solomon, 2008. "Microscopic study reveals the singular origins of growth," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 62(4), pages 505-513, 04.
  3. Kolodko, Grzegorz W., 2000. "From Shock to Therapy: The Political Economy of Postsocialist Transformation," OUP Catalogue, Oxford University Press, number 9780198297437.
  4. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  5. Vladimir Popov, 2007. "Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms1," Comparative Economic Studies, Palgrave Macmillan, vol. 49(1), pages 1-31, March.
  6. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, International Monetary Fund.
  7. Gur Yaari & Andrzej Nowak & Kamil Rakocy & Sorin Solomon, 2008. "Microscopic Study Reveals the Singular Origins of Growth," Papers 0803.2201, arXiv.org.
  8. Vladimir Popov, 2006. "Shock Therapy Versus Gradualism Reconsidered: Lessons From Transition Economies After 15 Years Of Reforms," Working Papers w0068, Center for Economic and Financial Research (CEFIR).
  9. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," NBER Working Papers 7664, National Bureau of Economic Research, Inc.
  10. Sachs, Jeffrey D, 1996. "The Transition at Mid Decade," American Economic Review, American Economic Association, vol. 86(2), pages 128-33, May.
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Cited by:
  1. Sorin Solomon & Natasa Golo, 2014. "Microeconomic Structure determines Macroeconomic Dynamics. Aoki defeats the Representative Agent," Papers 1401.7496, arXiv.org.

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