The Great Recession’s long-term damage

Laurence Ball 01 July 2014

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According to macroeconomics textbooks, a fall in aggregate demand causes a recession in which output drops below potential output – the normal level of production given the economy’s resources and technology. This effect is temporary, however. A recession is followed by a recovery period in which output returns to potential, and potential itself is not affected significantly by the recession.

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Topics:  Global crisis

Tags:  growth, unemployment, OECD, potential output, Great Recession, hysteresis

The negative impact of the financial crisis on potential output necessitates an EU-led policy response

Declan Costello, Gert Jan Koopman, Kieran Mc Morrow , Gilles Mourre, István P. Székely, Alexandr Hobza 15 July 2009

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The IMF’s most recent forecasts project that the EU’s GDP will fall 4.7% this year and continue to shrink (-0.1%) in 2010 (IMF, 2009). Financial market turbulence, credit shortages/deleveraging, higher unemployment, and steep reductions in activity in certain industries as resources reallocate will inevitably lead to a non-negligible short-run (i.e. 2009/2010) loss in the supply-side capacity of EU economies.

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Topics:  Global crisis

Tags:  climate change, demographic ageing, public finances, EU reform, potential output

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