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Growth Dynamics: The Myth of Economic Recovery

Valerie Cerra
International Monetary Fund (IMF)

Sweta C. Saxena
Bank for International Settlements (BIS) - Monetary and Economic Department

March 2007

IMF Working Paper No. 05/147
BIS Working Paper No. 226

Abstract:
Using panel data for a large number of countries, we find that economic contractions are not followed by offsetting fast recoveries. Trend output lost is not regained, on average. Wars, crises, and other negative shocks lead to absolute divergence and lower long-run growth, whereas we find absolute convergence in expansions. The output costs of political and financial crises are permanent on average, and long-term growth is negatively linked to volatility. These results also imply that panel data studies can help identify the sources of growth and that economic models should be capable of explaining growth and fluctuations within the same framework.

Keywords: Growth, Output Loss, Recessions, Recovery, Business Cycles, Crises, Wars

JEL Classifications: C23, E32, F43, O40

Working Paper Series

Date posted: August 16, 2005 ; Last revised: September 12, 2007

Suggested Citation

Cerra, Valerie and Saxena, Sweta C., Growth Dynamics: The Myth of Economic Recovery (March 2007). IMF Working Paper No. 05/147; BIS Working Paper No. 226. Available at SSRN: http://ssrn.com/abstract=777706

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Contact Information

Valerie Cerra (Contact Author) International Monetary Fund (IMF) ( email ) 700 19th Street NW Washington, DC 20431 United States 202-623-8596 (Phone)
Sweta Chaman Saxena Bank for International Settlements (BIS) - Monetary and Economic Department ( email ) Centralbahnplatz 2 CH-4002 Basel Switzerland