From recession to normalcy: Recoveries as a third phase of the business cycle

Antonio Fatás, Ilian Mihov, 14 August 2013



According to the NBER business cycle dating committee, the last recession in the US ended in June 2009 (NBER 2013). Three years later US unemployment remains high and most estimates suggest that output remains below potential; a pattern also present in other advanced economies.

Topics: Global crisis
Tags: recession, recovery

The hysterical economy

Laurence J. Kotlikoff, 16 December 2012



Imagine that you are an employer. Every day you hear, “the economy’s going over a fiscal cliff. Tax hikes and spending cuts totalling $600 billion will kill the economy”. Everyone is saying it - the politicians, the media, the economists, the Fed, the CBO, the IMF. So it must be true. Sure, the Republicans and Democrats may make a deal and save the day.

Topics: Global crisis, Macroeconomic policy
Tags: global crisis, recession, USA

Have the US and European economies parted company? The signals are increasingly clear

Lucrezia Reichlin, Domenico Giannone, Jasper McMahon, Saverio Simonelli, 2 May 2012



According to the NBER (2012), the last recession ended in June of 2009. CEPR (2012) dates the end of the recession in the Eurozone in the same quarter. For the UK, there is no established chronology but a visual inspection of Figure 1 shows that the recession and the subsequent recovery in the three economies have been highly synchronised.

Topics: Global economy
Tags: business cycle, Europe, recession, recovery, UK, US

What caused the recession of 1937-38?

Douglas Irwin, 11 September 2011



The recession of 1937-38 is sometimes called “the recession within the Depression.” It came at a time when the recovery from the Great Depression was far from complete and the unemployment rate was still very high. In fact, it was a disastrous setback to the recovery.

Topics: Economic history, Global crisis, Macroeconomic policy, Monetary policy
Tags: gold standard, Great Depression, monetary policy, recession, US

The allocation of time over the business cycle

Erik Hurst, Loukas Karabarbounis, Mark Aguiar, 17 August 2011



After years of steady growth, the global economy has turned and so too has the interest in unemployment (see recent examples on this site Smith 2011 and Cingano and Rosolia 2011). The rising levels of unemployment around the world bring up some key questions:

Topics: Labour markets
Tags: jobs, recession, time management, unemployment, US

Recession and recovery in the euro area

Harald Uhlig interviewed by Romesh Vaitilingam, 8 Oct 2010

CEPR’s Euro Area Business Cycle Dating Committee has announced that the recession that began in the first quarter of 2008 came to an end in the second quarter of 2009. Harald Uhlig of the University of Chicago, who chairs the committee, talks to Romesh Vaitilingam about how this recession compares with previous recessions and with the US recession, and about the components of GDP that are driving recovery. The interview was recorded in a telephone press conference on 4 October 2010.


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Romesh Vaitilingam interviews Harald Uhlig for Vox

October 2010

Transcription of an VoxEU audio interview []

Romesh Vaitilingam: Welcome to Vox Talks, a series of audio interviews with leading economists from around the world. My name is Romesh Vaitilingam, and today's interview is with Professor Harald Uhlig from the University of Chicago. Harald is chairman of CEPR's Euro Area Business Cycle Dating Committee, which seeks to establish the chronology of recessions and expansions in the euro area, in a similar way to the NBER's Dating Committee for the US business cycle.

Harald's committee recently declared that the latest recession in the euro area came to an end in the second quarter of 2009. When we spoke during a telephone press conference in early October 2010, I began by asking him about the value of identifying turning points in the business cycle.

Harald Uhlig: It's an exercise in data reduction, and there's a lot of particular data obviously in principle, you know, anybody could just get on the website of Eurostat or the European Central Bank, and download lots of data. But, nonetheless, dating the business cycle often makes headline news, because it tells people, "OK, here's an important point that we crossed." People want to know, when did the recession begin, when did the recession end. I think it's also important as a signal to policy makers, you know, that often use the data of business cycle in their own deliberations, in certain speeches, and so forth.

So, it's simply, you know, sets markers, important markers, I feel, on the plethora of data that is out there.

Romesh: Perhaps you could explain in a little more detail how you go about identifying a peak or a trough in the data.

Harald: You look, you know, in the first place, at GDP in the Eurozone, but we also look at a variety of other data, so we look at GDP in the member countries, we look at components of GDP, we look at the industrial production, investment, consumption. Then we look at employment, unemployment. So, really, we try to take an overall picture of the economy. It's not just GDP alone, although GDP is clearly the overriding indicator.

And the recent declaration of the trough that was, you know, relatively easy, since all these indicators, you know, point in the same direction. You know, it was just clear that all the, more or less, all the Eurozone countries went into the trough in the second quarter of 2009.

That was much more difficult when you originally declared the peak, because it was more dispersed evidence across the various indicators.

One thing that we have seen, though, coming out of the recession now, is that employment still is not recovering, right? So, employment still remains flat, and unemployment as well…. That’s not unusual coming out of a recession, though. So, we thought should we disregard that evidence as saying, maybe the recession has been going on for longer. But, we'd rather say no, the recession ended now, and employment may or may not return to its original level.

Romesh: Now, you pinpoint the quarter at which the trough of the recession is, and you also pinpoint a month. Can you explain those distinctions?

Harald: The NBER traditionally has always stated the month, and that's due to them having, you know, monthly data that they can very well rely on. For the Eurozone, that's a little bit more tricky. We have quarterly GDP data, and that's our main indicator, so, we can usually, fairly quickly see the quarter in which the trough occurred, or the peak occurred. But, for the month, you know, it's less clear what data, precisely, to look at.

We look at industrial production, which, this time, at least, showed a very clear trough. You look at, say, we look at some country individual data, sometimes two. That's a little bit more tenuous, but, since the NBER does monthly business cycle dating, we feel that we should do that too, and we're confident about our announcement that it has been April 2009.

Romesh: Can we make some comparisons of recessions, both over time and across countries? From your decision or your finding that the euro area recession ended in quarter two of 2009. That's coming out of recession sooner than the United States, and the United Kingdom.

Harald: That's correct. So, the recession started slightly later, and we came out of the recession slightly earlier. It's remarkable that this has been the recession that is almost worldwide. You know, the main drive of the recession was at the United States, maybe it's not all that unsurprising that Europe got in it slightly later and got out of it slightly earlier. It caught the bug that originated in the United States, maybe, more than, you know, it being the cause of that worldwide business cycle.

It is also true that the business cycles in Europe tend to be flatter than those in the United States. We have seen that when we dated the business cycle, historically, there's a document on the CEPR website where we did this in 2003. Often times, business cycles in the United States are fairly sharp, whereas for Europe, we struggle in that it's a very flat business cycle where the GDP was barely budging, and was barely going up and barely going down.

I think we had one cycle, actually, where GDP, at the end, is higher than what is at the beginning. You know, it's very unusual for a business cycle, simply because, you know, GDP didn't do anything during that time.

So, European business cycles, Eurozone business cycles, from what we can tell, tend to be flatter than those in the United States. And there are a variety of reasons one can think of.

One may be that, simply because we have a diverse set of countries, we have more dispersion of economic activity. So, it may be that one decline in one country may be slightly compensated for by less of a decline in another country, might have less homogeneity.

The other thing is, also, that the government sector seems to be larger in the Eurozone. And government spending tends to be considerably smoother.

Romesh: Let's talk about the depth of this recession. How does it compare with previous recessions in the euro area, and in Europe, more broadly?

Harald: We haven't made that comparison, but from what I can tell, from what I recall, I mean, this is, this seems to be the deepest recession that we had, so far.

Romesh: So, you’re speaking of anything post-1970s, I guess, which is when you started, when your data goes back to.

Harald: That's right. For example, the 1982 recession that was a big deal in the United States really wasn't all that deep in Europe, right? So, that's usually the recession that everybody compares this recession to in the United States. And there almost was no recession, and GDP was just flat at the time in the countries that now make up the Eurozone.

Romesh: And do you have a feel yet for how the speed of recovery, coming out of the recession, compares with previous recessions?

Harald: Well, again, the previous recessions, they looked mild compared to this one. It's fast going down, but it also seems to be fast going up. So, I get the sense that the recovery, at least as GDP and industrial production is concerned, it seems to be a reasonably quick turnaround for now. Growth has certainly been strong, maybe not so in the last quarter, but since coming out in the second quarter of 2009. With employment, we have to wait and see. That seems to be, again, a lagging indicator.

Romesh: Of course, that's the big concern in the United States, about what they call the "jobless recovery," isn't it? And you're not certain that we're seeing a similar picture in Europe.

Harald: That's true. That was a concern in the previous recession in the United States, which, by the way, was not a recession in Europe, and it's a concern again now. This is an analysis of the economic situation, which, at the Business Cycle Committee, we refrain from doing, really, right? Our job is more of an accounting job, of just announcing, "This was the beginning. This was the end." My own personal sense here is that Europe is better prepared for getting out of this recession in good shape as far as unemployment numbers, simply because some of the welfare state excesses that have been there in the past that led to certain rigidity in employment and not much recovering, they have been removed. So Europe, in particular Germany, has set some considerable reforms in the labor market. Not pleasant for those that are unemployed, but it makes a recovery quicker in the end, I would tend to think and hope.

Romesh: Can we talk about the differences across countries? Because, of course, you're drawing on data from individual countries as well as cross euro area data. Could you give us a picture of the different experiences of different countries within the euro area?

Harald: Sure. So Germany, for example, came out a little earlier. Spain came out later. But, overall, I would say there was a remarkable degree of synchronization among the countries. Some of the smaller countries, like Ireland, particularly Greece, they clearly are at a different point altogether. But France, Germany, Italy, Spain, they all had that trough in the first or the second quarter of 2009.

Romesh: Can we talk about the components of GDP growth and which ones are making a contribution, I guess, both to the downturn and to the recovery, the traditional breakdown between consumption and government spending and investment and trade?

Harald: We looked into this. It turns out to be tricky. Despite the fact that we put this in the press release, we want to be careful in interpreting these numbers. Some of these numbers and we noticed that, too, in dating the business cycles they keep on changing during the various releases from Eurostat. As they have to, right? Eurostat keeps getting new numbers in, and so they constantly revise the data. So then, when you try to decompose how to decode and pose certain changes, you're taking difference of some numbers that tend to be noisy, and so one has to take this with a grain of salt and with some caution.

What we did is we took the nominal growth in output from 2009 in the second quarter, through 2010, the second quarter, since that's sort of the recent recovery phase, and we looked how that decomposes nominally into its various components.

Now, there are actually various ways of doing that. You could also take the real GDP, you could take the real components, and then the picture actually turns out to look slightly different.

If you take the nominal components, it looks like private consumption accounted for about half of that recovery, inventory investment accounted for about a third, and government consumption maybe for about a quarter, give or take. The contribution of investment firms in the form of growth, fixed capital formation, was rather negligible, so the building of factories and so forth.

And the contribution of China was actually slightly negative. That was slightly surprising to us because, personally, I had the feeling that maybe Germany was partly drawn out of the recession by increased Asian demand for German cars and German goods and so forth, and that would give us a big component in trade. And we also know that trade overall has recovered to a considerable degree in the world. But, nonetheless, if you look at these four quarters, it doesn't seem that trade contributed all that much to the Eurozone recovery, in any case. It even seemed negative.

Romesh: So, this doesn't look very encouraging so far for the balanced recovery that many policymakers are hoping for that's driven by investment and exporting rather than by private consumption or by government spending.

Harald: Well, it may be that firms didn't reduce their investment plans all that much, so they may still be waiting a little bit more for business to pick up sufficiently much to really then go out and do business plans and so forth. That's a possibility. But, consumption tends to be very a forward looking piece. So, people assess: will they have jobs in the future, can they afford this amount of consumption, and so forth. So, given that private consumption picks up, I think that gives me a sense that there's a certain feeling of a healthy recovery, at least in the minds of European consumers, one would hope. It may also be that this is due to government stimulus. You put hands in the people that are credit constrained, they go out and spend it. It's possible that that was accounting for some fraction of that as well. And that would be less healthy, obviously.

Romesh: We talked at the beginning about the value of this kind of work in identifying the turning points, and you mentioned their value to policymakers. How would policymakers react, do you think, to this kind of interpretation, that the recession ended second quarter of 2009 and we're in a slow recovery? What could they take away from it, do you think?

Harald: We will have to wait and see. We have to ask the politicians, I guess. And judging from the United States, different politicians interpreted it differently, depending on whether they're in government or not. Usually, the people in government take credit for the end of the recession, whereas the ones outside will blame them for the end of the recession not being strong enough. But, looking forward, it's clear that there are still clouds on the horizon for Europe. I think the debt problem, the recession may still be fragile, to some degree, in the United States and in Europe. It may be too early to go out and pop the bottles of champagne and saying everything is back to normal.

I think politicians will probably breathe a sigh of relief that at least this recession is over, that we have gone through the worst, and that there's no Great Depression, maybe it's at least back to potential recovery, but we have to be vigilant that we're not sliding into another one.



Topics: Macroeconomic policy
Tags: business cycle, CEPR, euro area, recession

Euro Area Business Cycle Dating Committee: Determination of the 2009 Q2 trough in economic activity

Harald Uhlig, 4 October 2010



The Eurozone has been it hard and in many ways by the Global crisis.

Topics: Europe's nations and regions, Macroeconomic policy
Tags: business cycle, eurozone, recession

The Great Recession ended in May 2009: Evidence from unemployment and the stock market in the last fourteen recessions

Roger E. A. Farmer , 5 October 2009



A number of economists, including Chairman Bernanke of the US Federal Reserve, have declared that the current recession is very likely over (Robb, 2009), and two reporters for Forbes (Wesbury and Stein, 2009) have dated the end of the recession to May 2009.

Topics: Global crisis, Macroeconomic policy
Tags: double dip, jobless recovery, NBER Business Cycle Dating Committee, recession

Happiness: the impact of growth, inequality and recession

Justin Wolfers interviewed by Romesh Vaitilingam, 24 Jul 2009

Justin Wolfers of the University of Pennsylvania’s Wharton School talks to Romesh Vaitilingam about happiness economics – the state of knowledge; the explosion of data; the debate about the Easterlin paradox; the impact of inequality and the business cycle on people’s happiness; and the implications for public policy. The interview was recorded at the Centre for Economic Performance in London in June 2009.


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Topics: Frontiers of economic research, Health economics, Poverty and income inequality
Tags: happiness, recession, unequality

Immigration to the land of redistribution

Tito Boeri interviewed by Romesh Vaitilingam, 10 Jul 2009

Tito Boeri of Bocconi University talks to Romesh Vaitilingam about his research on public perceptions of migrants in Europe, which, in the middle of a recession, are increasingly seeing migrants as a fiscal burden and are pressing governments to reduce their access to welfare and tighten immigration policies. The interview was recorded at the Centre for Economic Performance in London in June 2009.


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Romesh Vaitilingam interviews Tito Boeri for Vox

June 2009

Transcription of an VoxEU audio interview [

Romesh Vaitilingam: Welcome to Vox Talks, a series of audio interviews with leading economists from around the world. My name is Romesh Vaitilingam, and today's interview is with Tito Boeri of Bocconi University in Milan.

Tito and I met in London in June 2009 at a conference organized by the Center for Economic Performance. Tito had presented a paper entitled, "Immigration to the Land of Redistribution." I began by asking him to explain the scale of migration to Europe in recent years.

Tito Boeri: Europe has been experiencing very large migration inflows in the last 20 years. Before, it was the US, the main land of attraction of immigrants. In the last 20 years, it has been the EU. We got about 26 million people from outside the EU.

And this has gone hand-in-hand, especially in the most recent years, with a deterioration of perception about migrants. If you look at several polls, and in particular, I've been working on the European Social Survey, which I think is a very good survey, you do see that Europeans seem to be more and more concerned about migrants.

They do think that the overall impact of migration on the economy is bad. And specifically, also, they do start off thinking that on specific grounds that there are serious problems related to migration. In particular, now that we are into the recession, you do see that there is also a very sharp deterioration of perception. And people do argue that they would like unemployed migrants to leave their country and go back to their country of origin. We have never seen something like that, to that scale, in Europe.

And I think that this type of perception can also explain things that we have been observing recently. For instance, the outcomes of European elections. Typically, social-democratic parties, during the recession, perform better in elections. And if you also look at the history of the European Parliament, you will see that in Strasburg, really, the best time, the golden ages of the social democrats, were just after a recession, or in the midst of a recession, like in '93, '94. This is because social democrats are deemed to be credible in pushing redistributive policies and being very careful about job losses and the social cost of recessions.

Now, I think, European citizens are realizing that the welfare-state expansion is not a really suitable way to counteract recession, because one of the side effects of this redistributive policy is to attract a lot of migrants. So, at the end of the day, it may be the migrants who will exploit these benefits, and may actually become, also, a heavy fiscal burden for the united citizens. And in terms of migration, certainly, the other field, the centre-right is more credible than the centre-left.

Romesh: So, really, you see this as a kind of paradox. You think of the European Union as pretty much taking the view, believing in social protection, believing in social inclusion. And yet the popular attitude has now turned to one of social exclusion, saying ‘good-bye’ to people who've come here.

Tito: Indeed. The paradox is that these measuress were introduced as a measure of social inclusion, and they are becoming, right now, sort of weapons of mass exclusion. So something has to be done to deal with that.

I tried, clearly, in the paper, to document what has been happening, and the fact that, really, this perception of a fiscal burden is the driving force of the deterioration of perception, and I do think that I found some quite strong evidence of that. So it is because of this fiscal burden perception that Europeans are really thinking that migrants are a bad thing for Europe.

So I guess that, in terms of a response to this type of situation, the issue is to decouple migration from welfare. That's really the challenge.

So far, governments have been doing two things. One has been to tighten up migration policies by becoming more and more effective. And the second thing that they did, in some countries, was to reduce welfare access by migrants, in particular by restricting access to this measure only to citizens.

I don't think that these two measures, besides all the problems that we can talk about –equity, problems of assimilation – are enforceable. The very fact that you get so many legal migrants suggests that migration restrictions are not particularly effective.

And also, Europe's experience in the '90s, in cutting welfare access by migrants, suggests that, typically, these types of measurs have been challenged by courts, and you have an already large immigrant population of potential voters in our communities, and they would certainly oppose that. And thirdly, those who are supposed to implement these restrictions, social workers, are often very much against creating this type of asymmetry. So I don't think, really, this type of solution is a solution to decouple.

There are other ways to deal with the problem. One is to become more selective in migration policies, to adopt a point-based system, really, providing scores based on the education level. And clearly, that would allow migration composition to be less at risk of becoming people long-term dependent on social welfare.

Another option is to harmonize social welfare systems across the EU, because I do think that the European citizens do worry that if they have a general welfare state they would end up attracting only low-skill types, likely to become unemployed. And there is some evidence that this is indeed occurring.

And the third option would instead be to strengthen the contributory component of our social redistributive systems and make them more proactive, so to discourage people from becoming long-term dependent on welfare, in particular migrants.

The first two options, a point-based system and a common, or a EU-harmonized social welfare system, seem to me to be quite far from the current situation of the EU. We really like policy coordination, and I don't think that an agreement can be reached, at least in the short term. But certainly, these two options are to be considered, perhaps in the long term.

What is possible in the very short term is to really work out the national dimensions of social welfare systems and make them more proactive and increase the contributory component welfare system. There are many experiments going on in Europe on these things, and they are generally encouraging as to the fact that well-done, well-designed social policies do work pretty well, if there is clearly a good interaction between a benefit and sanction.

So if you give to people, help, assistance, but at the same time, you require from them cooperation, and in case they don't cooperate, you also have some sanction. This type of thing seems to work pretty well.

Romesh: What do we know about the relationship between perceptions of the impact of immigration on European economies and the reality? I mean, how much of these failures on the part of educated people to communicate to the populations that immigration tends to have beneficial effects, both for the host countries and for the for the home countries?

Tito: Yes, there is certainly a problem that some of this perception may be driven by media or by other factors, or certainly not so well grounded in facts. The perception about the size of migration may not be that wrong. In a way everywhere in Europe, people do think that there are more migrants than those measured by the statistics, but it is also plausible that this is true. I mean, we know how imperfect are our statistics about migration.

Where there is really a problem, and this has been quite well-documented by recent work, is on perception about, for instance, exposure to crime rates of migrants. There we don't see in the data, the same type of a perception. We don't get confirmation of this perception. It's not true that migrants are over-represented in the population involved in crime activities, especially small crime. And there doesn't seem to be any relationship between migration and crime. The studies I am aware of even didn't see any of the type of things.

Well, certainly media coverage is certainly important in influencing public opinion in this respect. For instance, a case that had been investigated quite thoroughly is Italy. In Italy, we got at some point, a very strong perception against migrants driven by this concern about crime rates at a time in which criminal activity was declining. The only thing that was happening was that we were getting closer to elections, and the media were covering a lot the issue.

You know, one device that they're using in Spain to avoid this type of problem is that when everybody said ‘report about the criminal activity, not the citizenship of the people being involved’. That may be a good thing to be done because in terms of the public opinion … you should public the statistics of course at the end of a year. Have clear statistics stating how many crimes have been committed by this and this, and by nationality as well. But avoiding to present on TV every day, whenever there's a crime, the nationality of those being involved, because that may drive this type of perception, and also bring them far away from reality.

Romesh: How much variation is there in these perceptions of immigration levels and the impact of immigration across countries within the European Union and across different groups according to their education? I mean, presuming somewhere like Spain, now - I don't know if we have the latest data - with very high unemployment, it must be reacting particularly badly to the immigrant population.

Tito: Oh, yes, certainly the countries that have been hit the most hard by the recession, like Spain and Ireland, are experiencing also a very strong deterioration of perception right now. In terms of the characteristics of individuals, what really matters is that education is very important indeed. And the fact that more educated people tend to have better perception about migrants.

And this cannot be explained by the fact that the better-educated people have a better awareness of the size of migration. Also it's independent of that. So I do think it is a problem related to income distribution - the fact that our educated people, in a way, are less likely to be affected by migration in terms of income distribution effect, because clearly, the pressure on the wage side would be mainly on low-skilled types, insofar as you get low-skill migration. And also in terms of a welfare drain effect, the welfare drain effect is going to hit above the low-skilled type.

So there are important differences within countries in this domain, and these are quite important and informative as to the nature of this perception.

Romesh: Final question, Tito. What about the impact of the recession, is that going to make a significant dent in the migration numbers? Are more migrants going to go home, or is the fact that we have this welfare state in Europe actually going to retain people even if there are no jobs for them?

Tito: Well, other authors like Tim Hatton have been working on this issue. And actually Vox has been talking about presenting some of the results. They do show that there is a sort of 10 percent rule. So by any 100 more unemployed, a country will get about 10 less migrants coming in.

Other studies had been working on the effect of GDP growth on migration flows, and there also they found some quite strong elasticity of migration influence in terms of the dynamics of GDP. So in the years in which GDP is declining, you get lowered influence of migrants.

So I do think that this is certainly going to happen. It depends clearly on the type of migration, on the origin of the migrants, and clearly also on the characteristics of the destination country. Perhaps in Europe, being that we have more social policy, this type of elasticity maybe somewhat lower and make the problem that I was mentioning before even worse.

Certainly, one thing that I don’t think is particularly effective; some countries are introducing schemes to encourage the migrants to go back home during the recession. I think we have all of this return migration, this effect on migration that had been documented by the literature.

Policies funding or supporting ‘migrants leave our countries’ are bound to be not particularly effective, may end up wasting money or giving money to people who then come back. So I don't think it's really worth investing many resources in that respect. It is much better to invest these resources in improving the work of our welfare system and make them, as I was saying before, more bright.

Romesh: Tito, right, thank you very much.

Tito: Thank you.

Topics: EU policies, Migration
Tags: immigtation, public perceptions, recession

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