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Why has the US economy stagnated since the Great Recession?

Yunjong Eo () and James Morley ()

No 2017-14, Working Papers from University of Sydney, School of Economics

Abstract: Since the Great Recession, U.S. real GDP has not returned to its previously projected path, a phenomenon widely associated with secular stagnation. We investigate whether this stagnation is due to hysteresis effects from the recession, a persistent negative output gap following the recession, or slower trend growth for other reasons. To do so, we develop a new Markov-switching time series model of output growth that accommodates two different types of recessions, those which permanently alter the level of real GDP and those with only temporary effects. We also account for structural change in trend growth. Estimates from our model suggest that the Great Recession generated a large persistent negative output gap rather than any substantial hysteresis effects, with the economy eventually recovering to a slower-growth trend path due to an apparent reduction in productivity growth that began sometime prior to the onset of the Great Recession.

Keywords: Secular stagnation; The Great Recession; output gap; Markov switching; Phillips Curve (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017-11, Revised 2019-06
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