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Long-term damage from the Great Recession in OECD countries

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  • Laurence Ball

    (Johns Hopkins University, USA)

Abstract

This paper estimates the long-term effects of the global recession of 2008–2009 on output in 23 countries. I measure these effects by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time. The losses in potential output range from almost nothing in Australia and Switzerland to more than 30 percent in Greece, Hungary, and Ireland; the average loss, weighted by economy size, is 8.4 percent. Most countries have experienced strong hysteresis effects: shortfalls of actual output from pre-recession trends have reduced potential output almost one-for-one. In the hardest-hit economies, the current growth rate of potential is depressed, implying that the extent of lost potential is growing over time.

Suggested Citation

  • Laurence Ball, 2014. "Long-term damage from the Great Recession in OECD countries," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(2), pages 149-160, September.
  • Handle: RePEc:elg:ejeepi:v:11:y:2014:i:2:p149-160
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "Recovery from Financial Crises: Evidence from 100 Episodes," American Economic Review, American Economic Association, vol. 104(5), pages 50-55, May.
    3. Teresa C Fort & John Haltiwanger & Ron S Jarmin & Javier Miranda, 2013. "How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 520-559, August.
    4. Laurence Ball, 1999. "Aggregate demand and Long-Run Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 189-252.
    5. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90, National Bureau of Economic Research, Inc.
    6. Laurence M. Ball, 2009. "Hysteresis in Unemployment: Old and New Evidence," NBER Working Papers 14818, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Great Recession; hysteresis; potential output;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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