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International Evidence on Recovery from Recessions

Valerie Cerra, Sweta Saxena and Ugo Panizza

No 09/183, IMF Working Papers from International Monetary Fund

Abstract: Although negative shocks have persistent effects on output on average, this paper shows that macroeconomic policies and the structure of the economy can influence the speed of recovery and mitigate the persistence of the shock. Indeed, monetary and fiscal stimulus and foreign aid can spur a rebound, with impacts that are asymmetrically stronger than in nonrecovery years. Real depreciation and the exchange rate regime also have asymmetric growth effects in a recovery year relative to other years of expansion. Recoveries are more sluggish in open economies, partly because fiscal policy is less effective than in closed economies.

Keywords: Concessional aid; Economic growth; Developed countries; Banking crisis; Business cycles; External shocks; Emerging markets; Exchange rate regimes; Economic recession; Economic recovery; Real effective exchange rates; Fiscal policy; Monetary policy; Trade policy; Growth, Recession, Rebound, Output loss, exchange rate, recessions, exchange rate regime, (search for similar items in EconPapers)
Pages: 30
Date: 2009-08-01
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-opm
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Handle: RePEc:imf:imfwpa:09/183