The Universal Shape of Economic Recession and Recovery after a Shock

25 Pages Posted: 18 Dec 2010

See all articles by Damien Challet

Damien Challet

CentraleSupélec; Encelade Capital SA

Sorin Solomon

Hebrew University of Jerusalem

Gur Yaari

The Racah Institute of Physics, Hebrew University

Multiple version iconThere are 3 versions of this paper

Date Written: 2009

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 times of recession and recovery. We then argue that this equation is the response function of the economy to isolated shocks, hence that it can be used to detect large and small shocks, including those which do not lead to a recession; we also discuss its predictive power. Finally, a two-sector toy 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, GDP, shocks, response function, 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 (2009). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 3, 2009-36. Available at SSRN: https://ssrn.com/abstract=1726867 or http://dx.doi.org/10.5018/economics-ejournal.ja.2009-36

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

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, IL Jerusalem 91905
Israel

Gur Yaari

The Racah Institute of Physics, Hebrew University ( email )

Mount Scopus
Jerusalem, IL Jerusalem 91905
Israel

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