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Implications of the financial crisis for potential growth: past, present, and future

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  • Charles Steindel

Abstract

The scale of the recent collapse in asset values and the magnitude of the recession suggest that activities connected to the increase in values over the 2002-07 period--notably, expansion of the financial markets, homebuilding, and real estate--were overstated. If this is true, aggregate U.S. economic growth would have been overstated, implying that previous rates of potential gross domestic product (GDP) growth may also have been overstated and that the trajectory of potential GDP may be slower going forward. Slowing growth in the finance, homebuilding, and real estate sectors could hold back aggregate growth. A detailed examination of these sectors' direct contributions to GDP, however, suggests that overstatements of past growth would likely not have made a large difference in recorded GDP growth. Slower growth in these sectors would have, at most, a moderate direct effect on aggregate economic activity. The recent experience's longer term effects on GDP would seem to stem largely from factors other than the retrenchment in these sectors.

Suggested Citation

  • Charles Steindel, 2009. "Implications of the financial crisis for potential growth: past, present, and future," Staff Reports 408, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:408
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    References listed on IDEAS

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    Cited by:

    1. Michał Gradzewicz & Jakub Growiec & Marcin Kolasa & Łukasz Postek & Paweł Strzelecki, 2018. "Poland’s uninterrupted growth performance: new growth accounting evidence," Post-Communist Economies, Taylor & Francis Journals, vol. 30(2), pages 238-272, March.
    2. Charles, Steindel, 2010. "The Financial Crisis and the Measurement of Financial Sector Activity," MPRA Paper 27240, University Library of Munich, Germany.
    3. Burgess, Stephen, 2011. "Measuring financial sector output and its contribution to UK GDP," Bank of England Quarterly Bulletin, Bank of England, vol. 51(3), pages 234-246.
    4. Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 822-832.
    5. Costa Cabral, Nazare, 2010. "Breve guia temático e bibliográfico sobre o estudo da actual crise financeira e económica [Short thematic guide to the study of current financial and economic crisis]," MPRA Paper 20743, University Library of Munich, Germany.
    6. Halmai, Péter, 2015. "Az európai növekedési potenciál eróziója és válsága [Erosion and crisis in European growth potential]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 379-414.
    7. Jane Haltmaier, 2012. "Do recessions affect potential output?," International Finance Discussion Papers 1066, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    Financial services industry; Financial crises; Construction industry; Real estate development; Gross domestic product; Economic conditions;

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