Growth Dynamics: The Myth of Economic Recovery

Cerra, Valerie; Saxena, Sweta C.

doi:10.2139/ssrn.1013572

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Growth Dynamics: The Myth of Economic Recovery

BIS Working Paper No. 226

41 Pages Posted: 25 Sep 2007

See all articles by Valerie Cerra

Sweta C. Saxena

Bank for International Settlements (BIS) - Monetary and Economic Department

There are 3 versions of this paper

Date Written: March 2007

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

JEL Classification: C23, E32, F43, O40

Suggested Citation: Suggested Citation

Cerra, Valerie and Saxena, Sweta Chaman, Growth Dynamics: The Myth of Economic Recovery (March 2007). BIS Working Paper No. 226, Available at SSRN: https://ssrn.com/abstract=1013572 or http://dx.doi.org/10.2139/ssrn.1013572