Is the “Great Recession” really so different from the past?

Chiu Adrian and Tomasz Wieladek
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Chiu Adrian: External MPC Unit, Bank of England, Threadneedle Street, London, EC2 8AHR, UK

The B.E. Journal of Macroeconomics, 2013, vol. 13, issue 1, 1037-1084

Abstract: Based on the decline in real GDP growth, many economists now believe that the “Great Recession” is the deepest global economic contraction since the Great Depression. But as real-time real GDP data is typically revised, we investigate if the decline in, and total output loss (severity) of, G-7 real GDP during the “Great Recession” is really so different from the past. We use a GDP weighted average of, as well as a dynamic common factor extracted from, real-time G-7 real GDP data to verify if this is the case. Furthermore, we use a Mincer and Zarnowitz [Mincer, J., and V. Zarnowitz. 1969. “The Evaluation of Economic Forecasts.” NBER Volume: Economic Forecasts and Expectations: Analysis of Forecasting Behaviour and Performance, pp. 1–46.] forecast efficiency regression to predict the revision to G-7 real GDP growth during the “Great Recession,” based on outturns of unrevised variables. In real-time data, the depth and intensity of the “Great Recession” are similar to the mid-1970s recession. The Mincer and Zarnowitz model predicts significant revisions to G-7 real GDP for 2008Q4 and 2009Q1 of about 0.81% and 1.08%, respectively. Together these facts imply that G-7 real GDP growth during the “Great Recession” may yet be revised to be in line with past deep recessions.

Keywords: dynamic common factor model; Great Recession; international business cycle; real-time data; JEL Classification Code: F44 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Is the ‘Great Recession’ really so different from the past? (2015)
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DOI: 10.1515/bejm-2012-0007

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