Why Has the U.S. Economy Stagnated Since the Great Recession?

42 Pages Posted: 30 Nov 2017 Last revised: 9 Apr 2020

See all articles by Yunjong Eo

Yunjong Eo

Department of Economics, Korea University

James Morley

University of Sydney - School of Economics

Date Written: April 6, 2020

Abstract

Since the Great Recession in 2007-09, U.S. real GDP has failed to return to its previously projected path, a phenomenon widely associated with secular stagnation. We investigate whether this stagnation was due to hysteresis effects from the Great 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 lower trend path which appears to be due to a reduction in productivity growth that began 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

Eo, Yunjong and Morley, James, Why Has the U.S. Economy Stagnated Since the Great Recession? (April 6, 2020). Available at SSRN: https://ssrn.com/abstract=3077864 or http://dx.doi.org/10.2139/ssrn.3077864

Yunjong Eo (Contact Author)

Department of Economics, Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

James Morley

University of Sydney - School of Economics ( email )

Rm 607 Social Sciences Building
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://https://sites.google.com/site/jamescmorley/

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