The Universal Shape of Economic Recession and Recovery after a Shock
24 Pages Posted: 2 Dec 2008 Last revised: 15 Jun 2010
Date Written: December 1, 2008
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: Suggested Citation