Are recoveries from banking and financial crises really so different?

Greg Howard, Robert Martin, Beth Anne Wilso

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

This paper studies the behavior of recoveries from recessions across 59 advanced and emerging market economies over the past 40 years. Focusing specifically on the performance of output after the recession trough, we find little or no difference in the pace of output growth across types of recessions. In particular, banking and financial crisis do not affect the strength of the economic rebound, although these recessions are more severe, implying a sizable output loss. However, recovery does change with some characteristics of recession. Recoveries tend to be faster following deeper recessions, especially in emerging markets, and tend to be slower following long recessions. Most recessions are associated with a slowing, if not outright decline in house prices, but recessions with large declines in house prices also tend to have slower recoveries. Long recessions and those associated with poor housing-market outcomes can lead to sustained output losses relative to pre-crisis trends. Consistent with microeconomic studies showing permanent income loss to job-losing workers during recessions, we find that the sustained deviation in output from trend is associated with a reduction in labor input, especially linked to declines in employment and labor-force participation following recessions. On net, our results imply that the output/employment gap following a severe, long recessions is considerably smaller than is typically assumed by standard macro models, which in turn may have substantial implications for macroeconomic policy during recoveries.

Original languageEnglish (US)
Title of host publicationRecovery after Recession
Subtitle of host publicationSelect Research and Analyses
PublisherNova Science Publishers, Inc.
Pages107-162
Number of pages56
ISBN (Print)9781624177774
StatePublished - Mar 1 2013
Externally publishedYes

ASJC Scopus subject areas

  • General Economics, Econometrics and Finance
  • General Social Sciences

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