The Stock Market Crash Really Did Cause the Great Recession

Roger Farmer

No 9630, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This note shows that a big stock market crash, in the absence of central bank intervention, will be followed by a major recession one to four quarters later. I establish this fact by studying the forecasting ability of three models of the unemployment rate. I show that the connection between changes in the stock market and changes in the unemployment rate has remained structurally stable for seventy years. My findings demonstrate that the stock market contains significant information about future unemployment.

Keywords: stock market; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 E27 E32 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-fmk and nep-mac
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Journal Article: The Stock Market Crash Really Did Cause the Great Recession (2015)
Working Paper: The Stock Market Crash Really Did Cause the Great Recession (2013)
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