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High-growth Recoveries, Inventories and the Great Moderation

  • Maximo Camacho


    (Universidad de Murcia)

  • Gabriel Perez-Quiros


    (Banco de España)

  • Hugo Rodríguez Mendizábal


    (Instituto de Análisis Económico (CSIC))

We present evidence about the loss of the so-called "plucking effect", that is, a high-growth phase of the cycle typically observed at the end of recessions. This result matches the belief, presented informally by different authors, that recession may have now permanent effects, or recession have now an L shape versus old-time recessions that always had a V shape. We also show that the loss of the "plucking effect" can explain part of the Great Moderation. We postulate that these two phenomena may be due to changes in inventory management brought about by improvements in information and communications technologies.

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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0917.

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Length: 44 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:bde:wpaper:0917
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  3. Stacey L. Schreft & Aarti Singh & Ashley Hodgson, 2005. "Jobless recoveries and the wait-and-see hypothesis," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 81-99.
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  7. James A. Kahn, 2008. "Durable goods inventories and the Great Moderation," Staff Reports 325, Federal Reserve Bank of New York.
  8. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 183-202.
  9. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  10. Shaghil Ahmed & Andrew Levin & Beth Anne Wilson, 2004. "Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck?," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 824-832, August.
  11. Todd E. Clark, 2009. "Is the Great Moderation over? an empirical analysis," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-42.
  12. James A. Kahn & Mark Bils, 2000. "What Inventory Behavior Tells Us about Business Cycles," American Economic Review, American Economic Association, vol. 90(3), pages 458-481, June.
  13. Máximo Camacho & Gabriel Pérez-Quirós, 2005. "Jump-and-rest effect of U.S. business cycles," Banco de Espa�a Working Papers 0507, Banco de Espa�a.
  14. Kim, C-J & Nelson, C-R, 1997. "Friedman's Plucking Model of Business Fluctuations : Tests and Estimates of Permanent and Transitory Components," Discussion Papers in Economics at the University of Washington 97-06, Department of Economics at the University of Washington.
  15. Boldin Michael D., 1996. "A Check on the Robustness of Hamilton's Markov Switching Model Approach to the Economic Analysis of the Business Cycle," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 1(1), pages 1-14, April.
  16. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 155-80, Fall.
  17. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
  18. Erica L. Groshen & Simon Potter, 2003. "Has structural change contributed to a jobless recovery?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Aug).
  19. Sichel, Daniel E, 1994. "Inventories and the Three Phases of the Business Cycle," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 269-77, July.
  20. Máximo Camacho & Gabriel Pérez-Quirós & Lorena Saiz, 2005. "Do european business cycles look like one?," Banco de Espa�a Working Papers 0518, Banco de Espa�a.
  21. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
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