The Universal Shape of Economic Recession and Recovery after a Shock

24 Pages Posted: 2 Dec 2008 Last revised: 15 Jun 2010

See all articles by Damien Challet

Damien Challet

CentraleSupélec; Encelade Capital SA

Sorin Solomon

The Racah Institute of Physics, Hebrew University

Gur Yaari

The Racah Institute of Physics, Hebrew University

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2008

Abstract

We show that a simple and intuitive three-parameter equation fits remarkably well the evolution of the gross domestic product (GDP) in current and constant dollars of many countries during the times of recession and recovery. We then argue that it can be used to detect shocks and discuss its predictive power. Finally, a two-sector theoretical model of recession and recovery illustrates how the severity and length of recession depends on the dynamics of transfer rate between the growing and failing parts of the economy.

Keywords: Economic growth, transition economies, GDP, modelling, prediction, optimal policy

JEL Classification: C32, O23, O41

Suggested Citation

Challet, Damien and Solomon, Sorin and Yaari, Gur, The Universal Shape of Economic Recession and Recovery after a Shock (December 1, 2008). Available at SSRN: https://ssrn.com/abstract=1309462 or http://dx.doi.org/10.2139/ssrn.1309462

Damien Challet (Contact Author)

CentraleSupélec ( email )

Labo MICS
3, rue Joliot-Curie
Gif-sur-Yvette, 91192
France

Encelade Capital SA ( email )

Chemin du Bochet 8
Sulpice, 1025
Switzerland

Sorin Solomon

The Racah Institute of Physics, Hebrew University ( email )

Mount Scopus
Jerusalem, 91905
Israel

Gur Yaari

The Racah Institute of Physics, Hebrew University ( email )

Mount Scopus
Jerusalem, IL Jerusalem 91905
Israel

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