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The Macroeconomic Impacts of the 9/11 Attack: Evidence from Real-Time Forecasting

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  • Roberts Bryan W

    () (U.S. Department of Homeland Security)

Abstract

Estimates of the consequences of human-made and natural disasters are crucial for informing decision making by both public and private actors. The 9/11 attack stands out as a particularly important event whose consequences need to be well understood. This study evaluates the macroeconomic impacts of the 9/11 attack on U.S. real GDP growth and the unemployment rate by examining how forecasts of these variables were revised after the attack occurred. By this approach, the immediate impact of the 9/11 attack was to reduce real GDP growth in 2001 by 0.5%, and to increase the unemployment rate by 0.11% (reduce employment by 598,000 jobs.) Results are robust to controlling for how economic forecasts typically change over the course of the forecasting horizon in normal and recession years. Impacts on 2002 outcomes are more difficult to identify. Forecasted real GDP growth in 2002 fell dramatically immediately after the 9/11 attack but then recovered fully. The recovery in the forecast could have been due to unforeseen responses that mitigated the impact of the attack, but it also could have been due to erroneous forecasting and a poor understanding of how the attack would impact the economy. The forecasted unemployment rate in 2002 rose sharply immediately after the 9/11 attack, but unlike real GDP growth, it never subsequently returned to a pre-9/11 level. Forecasters seemed to have anticipated the 2002 "jobless recovery" early in that year.

Suggested Citation

  • Roberts Bryan W, 2009. "The Macroeconomic Impacts of the 9/11 Attack: Evidence from Real-Time Forecasting," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 15(2), pages 1-29, July.
  • Handle: RePEc:bpj:pepspp:v:15:y:2009:i:2:n:9
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    References listed on IDEAS

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    1. Blomberg, S. Brock & Hess, Gregory D. & Orphanides, Athanasios, 2004. "The macroeconomic consequences of terrorism," Journal of Monetary Economics, Elsevier, pages 1007-1032.
    2. Charlotte Benson & Edward J. Clay, 2004. "Understanding the Economic and Financial Impacts of Natural Disasters," World Bank Publications, The World Bank, number 15025.
    3. Isiklar, Gultekin & Lahiri, Kajal, 2007. "How far ahead can we forecast? Evidence from cross-country surveys," International Journal of Forecasting, Elsevier, pages 167-187.
    4. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, pages 113-132.
    5. Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
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    Cited by:

    1. Rose Adam Z. & Blomberg S. Brock, 2010. "Total Economic Consequences of Terrorist Attacks: Insights from 9/11," Peace Economics, Peace Science, and Public Policy, De Gruyter, pages 1-14.
    2. Edmiston, Kelly D., 2017. "Financial Vulnerability and Personal Finance Outcomes of Natural Disasters," Research Working Paper RWP 17-9, Federal Reserve Bank of Kansas City.
    3. Malik, Zahra & Zaman, Khalid, 2013. "Macroeconomic consequences of terrorism in Pakistan," Journal of Policy Modeling, Elsevier, pages 1103-1123.
    4. Jonathan Benchimol & Makram El-Shagi, 2017. "Forecast Performance in Times of Terrorism," CFDS Discussion Paper Series 2017/1, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.

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