The Deeper the Recession, the Stronger the Recovery: Is It Really That Simple&quest

Azhar Iqbal and Mark Vitner

Business Economics, 2011, vol. 46, issue 1, 22-31

Abstract: Are deep recessions typically followed by strong recoveries? This paper investigates this question. There is not a single standard definition for a deep recession or a strong recovery. Therefore, our first step is to define what constitutes a deep recession and a strong recovery. Next we examine whether there is any causal relationship between deep recessions and strong recoveries. Our analysis shows there is no relationship between the depth of a recession and the subsequent pace of economic recovery when we use Gross Domestic Product, Gross Domestic Income, and employment as measures of recession and recovery. A modestly significant relationship does exist, however, between the magnitude of increases in the unemployment rate during a recession and decreases in the unemployment rate during the ensuing recovery.

Date: 2011
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