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The universal shape of economic recession and recovery after a shock

  • Challet, Damien
  • Solomon, Sorin
  • Yaari, Gur

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 times of recession and recovery. We then argue that this equation is the response function of the economy to isolated shocks, hence that it can be used to detect large and small shocks, including those which do not lead to a recession; we also discuss its predictive power. Finally, a two-sector toy 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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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2009-36
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File URL: http://econstor.eu/bitstream/10419/28106/1/609707493.PDF
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Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 3 (2009)
Issue (Month): ()
Pages: 1-24

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Handle: RePEc:zbw:ifweej:200936
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  1. Sachs, Jeffrey D, 1996. "The Transition at Mid Decade," American Economic Review, American Economic Association, vol. 86(2), pages 128-33, May.
  2. Kolodko, Grzegorz W., 2000. "From Shock to Therapy: The Political Economy of Postsocialist Transformation," OUP Catalogue, Oxford University Press, number 9780198297437, March.
  3. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  4. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," NBER Working Papers 7664, National Bureau of Economic Research, Inc.
  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. 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.
  7. 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).
  8. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  9. Gur Yaari & Andrzej Nowak & Kamil Rakocy & Sorin Solomon, 2008. "Microscopic Study Reveals the Singular Origins of Growth," Papers 0803.2201, arXiv.org.
  10. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, International Monetary Fund.
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