Investment Bubbles and Jobless Slow-Growth Expansions: A Tale of Three Recoveries
26 Pages Posted: 6 Apr 2013
Date Written: April 5, 2013
In most U.S. post-war business cycles, recessions were followed by above trend growth in output and employment. After the last three recessions, however, output and employment growth were sluggish. Economists focusing on employment have described these recoveries as “jobless.” This paper shows that each of the last three recessions coincided with a collapsing bubble in a category of private fixed investment: commercial real estate (1990-91), internet equipment (2001), and housing (2008-09). No previous recessions coincided with similar reallocations of investment spending. The paper provides evidence of the unique pattern of investment spending during the last three business cycles, and discusses how the collapse of investment bubbles can restrain economic recoveries. Since investment bubbles can deflate during financial crises, they help explain the sub-par economic performance that often accompanies these crises.
Keywords: Investment, Bubbles, Business Cycles, Jobless Recoveries
JEL Classification: E22, E24, E32
Suggested Citation: Suggested Citation