Why Has the U.S. Economy Stagnated Since the Great Recession?
37 Pages Posted: 30 Nov 2017 Last revised: 22 Jun 2019
Date Written: June 21, 2019
Since the Great Recession, U.S. real GDP has not returned to its previously projected path, a phenomenon widely associated with secular stagnation. We investigate whether this stagnation is due to hysteresis effects from the recession, a persistent negative output gap following the recession, or slower trend growth for other reasons. To do so, we develop a new Markov-switching time series model of output growth that accommodates two different types of recessions, those which permanently alter the level of real GDP and those with only temporary effects. We also account for structural change in trend growth. Estimates from our model suggest that the Great Recession generated a large persistent negative output gap rather than any substantial hysteresis effects, with the economy eventually recovering to a slower-growth trend path due to an apparent reduction in productivity growth that began sometime prior to the onset of the Great Recession.
Keywords: Secular stagnation; Great Recession; output gap; trend growth; Markov switching; structural breaks
JEL Classification: C22; C51; E32; E37
Suggested Citation: Suggested Citation