By Valerie Cerra and Sweta C. Saxena, IMF Blog

March 21, 2018

New study finds that all types of recessions lead to permanent losses in output and welfare 

Economic recessions are typically described as short-term periods of negative economic growth. According to the traditional business cycle view, output moves up and down around its long-term upward trend and after a recession, it recovers to its pre-recession trend. Our new study casts doubt on this traditional view and shows that all types of recessions—including those arising from external shocks and small domestic macroeconomic policy mistakes—lead to permanent losses in output and welfare.

Nearly a decade after the global financial crisis erupted into the Great Recession, the global economy finally appears to be on the verge of strong growth . Until recently, however, economic growth fell below forecasts of a vigorous rebound, as predicted by supporters of the traditional business cycle theory.

Some researchers have explained the sluggish post-crisis growth as driven by demographic trends or other factors specific to the United States. But such explanation ignores the fact that output dynamics after the crisis followed a similar pattern seen in other countries. Den Rest des Beitrags lesen »