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What Ends Recessions?

74 Pages Posted: 10 Jun 2000  

Christina D. Romer

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

David H. Romer

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1994

Abstract

This paper analyzes the contributions of monetary and fiscal policy to postwar economic recoveries. We find that the Federal Reserve typically responds to downturns with prompt and large reductions in interest rates. Discretionary fiscal policy, in contrast, rarely reacts before the trough in economic activity, and even then the responses are usually small. Simulations using multipliers from both simple regressions and a large macroeconomic model show that the interest rate falls account for nearly all of the above-average growth that occurs early in recoveries. Our estimates also indicate that on several occasions expansionary policies have contributed substantially to above-normal growth outside of recoveries. Finally, the results suggest that the persistence of aggregate output movements is largely the result of the extreme persistence of the contribution of policy changes.

Suggested Citation

Romer, Christina D. and Romer, David H., What Ends Recessions? (June 1994). NBER Working Paper No. w4765. Available at SSRN: https://ssrn.com/abstract=226985

Christina Romer (Contact Author)

National Bureau of Economic Research (NBER)

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University of California, Berkeley - Department of Economics ( email )

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David Romer

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-0822 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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