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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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  1. Mark Bils & James A. Kahn, 1999. "What Inventory Behavior Tells Us About Business Cycles," NBER Working Papers 7310, National Bureau of Economic Research, Inc.
  2. John Y. Campbell & N. Gregory Mankiw, 1987. "Are Output Fluctuations Transitory?," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 857-880.
  3. Camacho, Maximo & Pérez-Quirós, Gabriel, 2005. "Jump-and-Rest Effects of US Business Cycles," CEPR Discussion Papers 4975, C.E.P.R. Discussion Papers.
  4. 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.
  5. Shaghil Ahmed & Andrew T. Levin & Beth Anne Wilson, 2002. "Recent U.S. macroeconomic stability: good policies, good practices or good luck?," International Finance Discussion Papers 730, Board of Governors of the Federal Reserve System (U.S.).
  6. Dynan, Karen E. & Elmendorf, Douglas W. & Sichel, Daniel E., 2006. "Can financial innovation help to explain the reduced volatility of economic activity?," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 123-150, January.
  7. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
  8. 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.
  9. repec:tpr:qjecon:v:102:y:1987:i:4:p:857-80 is not listed on IDEAS
  10. 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.
  11. 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.
  12. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
  13. Erica L. Groshen & Simon M. 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).
  14. Herrera, Ana Maria & Pesavento, Elena, 2005. "The Decline in U.S. Output Volatility: Structural Changes and Inventory Investment," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 462-472, October.
  15. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
  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," NBER Working Papers 14048, National Bureau of Economic Research, Inc.
  17. Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports 41, Federal Reserve Bank of New York.
  18. Daniel E. Sichel, 1992. "Inventories and the three phases of the business cycle," Working Paper Series / Economic Activity Section 128, Board of Governors of the Federal Reserve System (U.S.).
  19. Chang-Jin Kim & Christian J. Murray, 2002. "Permanent and transitory components of recessions," Empirical Economics, Springer, vol. 27(2), pages 163-183.
  20. Campbell, John & Mankiw, Gregory, 1987. "Are Output Fluctuations Transitory?," Scholarly Articles 3122545, Harvard University Department of Economics.
  21. James A. Kahn, 2008. "Durable goods inventories and the Great Moderation," Staff Reports 325, Federal Reserve Bank of New York.
  22. 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.
  23. Friedman, Milton, 1993. "The "Plucking Model" of Business Fluctuations Revisited," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 171-77, April.
  24. 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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