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The Cause of the Great Recession: What Caused the Downward Shift of the GDP Trend in the United States?

Listed author(s):
  • Harashima, Taiji

The trend of the gross domestic product (GDP) of the United States clearly shifted downward after the Great Recession of 2008. This shift indicates that the cause of the Great Recession was a change in a fundamental factor that had the potential to significantly affect the steady state. In this paper, I examine three possible causes for the shift: a change in technology, a change in preferences, and a sudden malfunctioning of the price mechanism. I conclude that an upward shift of the expected rate of time preference is the most likely cause of the Great Recession. In addition, I estimated the yearly expected rate of time preference of the United States and found that the expected rate of time preference shifted upwards by 1–2 percentage points when the Great Recession began. I also estimated the expected rate of time preference for Japan and found that the rate increased prior to the extended period of economic stagnation during the 1990s.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 69215.

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Date of creation: 02 Apr 2016
Handle: RePEc:pra:mprapa:69215
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  10. Harashima, Taiji, 2014. "The Representative Household Assumption Requires sustainable Heterogeneity in Dynamic Models," MPRA Paper 57520, University Library of Munich, Germany.
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  17. Harashima, Taiji, 2014. "Time Preference Shocks," MPRA Paper 60205, University Library of Munich, Germany.
  18. Harashima, Taiji, 2013. "Escaping a Liquidity Trap: Keynes’ Prescription Is Right But His Reasoning Is Wrong," MPRA Paper 48115, University Library of Munich, Germany.
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