Countercyclical Policy and the Speed of Recovery after Recessions

FRB of St. Louis Working Paper No. 2013-032C

34 Pages Posted: 26 Oct 2013 Last revised: 1 Aug 2014

See all articles by Neville Francis

Neville Francis

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Laura E. Jackson

Bentley University - Department of Economics

Michael Owyang

Federal Reserve Bank of St. Louis - Research Division

Date Written: July 11, 2014

Abstract

The nature of the business cycle appears to have changed. Prior to the 1990s, recoveries from recessions were quick and steep; after the past three recessions, however, recoveries were weak and prolonged. We consider the effect of a number of countercyclical policies intended to shorten recessions and speed recoveries. Our innovation is to analyze the duration of the recoveries of various U.S. states, which gives us a cross-section of both state- and national-level policies. Because we study multiple recessions for the same state and multiple states for the same recession, we can control for differences in the economic conditions preceding recessions and the causes of the recessions when evaluating various policies. We find that expansionary monetary policy at the national level helps to stimulate the exit of individual states from recession. We also find certain factors extend expected recovery times: other states in the same region suffering from recession around the same time, the length of the preceding recession, and shocks to oil prices at the peak.

Keywords: jobless recovery, business cycles, survival analysis, variable selection

JEL Classification: C23, E32

Suggested Citation

Francis, Neville and Jackson Young, Laura and Owyang, Michael T., Countercyclical Policy and the Speed of Recovery after Recessions (July 11, 2014). FRB of St. Louis Working Paper No. 2013-032C, Available at SSRN: https://ssrn.com/abstract=2343872 or http://dx.doi.org/10.2139/ssrn.2343872

Neville Francis

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

Laura Jackson Young

Bentley University - Department of Economics ( email )

175 Forest Street
Waltham, MA 02452-4705
United States

Michael T. Owyang (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

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