A longstanding question in economics is whether labour-saving technology affects firms in the medium term by increasing output, by decreasing employment, or both. This column provides evidence on this issue using a novel dataset from the concrete industry during the Great Depression. Cheaper electricity caused a decrease in the labour share of income, an increase in productivity and electrical capital intensity, and a decrease in employment. Furthermore, these effects were stronger in counties where the Depression hit hardest, consistent with the idea of ‘the cleansing effect of recessions’.
Miguel Morin, 16 April 2016
Emmanuel de Veirman, 07 December 2015
Firms are believed to have more uncertain prospects during recessions, possibly deepening economic downturns. This column argues that the relationship between firm uncertainty and GDP growth is much weaker than is commonly assumed. Further, firms’ prospects were not particularly uncertain during the Great Recession. Lastly, firm-specific uncertainty does not appear to have an important effect on the business cycle.
Jan-Emmanuel De Neve, Michael I. Norton, 08 October 2014
How do macroeconomic changes affect people’s wellbeing? This column presents evidence that the life satisfaction of individuals is between two and eight times more sensitive to negative economic growth than it is to positive economic growth. Engineering economic ‘booms’ that risk even short ‘busts’ is unlikely to improve social wellbeing in the long run.
Jonathan A. Parker, 17 June 2014
Governments around the world are searching for macro-stimulation instruments. This column discusses evidence showing that rebate-type payments policies generate substantial increases in demand for goods and services. In particular, a large portion of tax rebates are spent rapidly on arrival.
Hites Ahir, Prakash Loungani, 14 April 2014
Forecasters have a poor reputation for predicting recessions. This column quantifies their ability to do so, and explores several reasons why both official and private forecasters may fail to call a recession before it happens.
Moritz Schularick, Alan Taylor, 24 October 2012
Is the sluggish growth we see in the North Atlantic economies normal? This column updates the authors’ 5 October 2012 column to include an analysis of the UK. The original column looks at 14 advanced economies over the past 140 years and shows that larger credit booms during expansions have been systematically associated with more severe and prolonged slumps. Measured against the historical benchmark, the recent US recovery has been far better than could have been expected. The same cannot be said of the UK’s growth performance.
Mathias Hoffmann, Iryna Stewen, 19 February 2012
Few would deny that there is a strong link between the health of a country’s banks and its public finances. With that in mind, this column argues that the banking system can learn from banking deregulation in the US, with knock on effects for Europe’s sovereign debt crisis.
James D. Hamilton, 18 July 2010
Is the world economy about to experience a "double-dip" recession? This column argues that, while there may be a recession on the way, the current recession ended in the summer of 2009. Any subsequent downturn should thus be labelled a new recession.
James D. Hamilton, 16 June 2009
Past oil price spikes associated with Middle East conflicts and OPEC embargos were each followed by a global economic recession. This column argues that the onset of the current economic downturn of is also partly attributable to a sharp increase in the price of oil. Moreover, the interaction of high oil prices and housing problems contributed to the severity of the downturn.
Prakash Kannan, Marco E Terrones, Alasdair Scott , 06 May 2009
Two features of the current recession – its association with a deep financial crisis and its highly synchronised nature – suggest that it is likely to be unusually severe and followed by a weaker-than-average recovery. Current and near- term policy responses are the key to understand how the recession will evolve this time.
Roger E. A. Farmer , 04 February 2009
This column proposes a new paradigm to reconcile Keynesian economics with general equilibrium theory. It suggests that, just as it sets the fed funds rate to control inflation, the Fed should set a stock market index to control unemployment. This would not let every manufacturing firm and every bank fail at the same time “as a result of speculative movements in markets that serve no social purpose.”
Yoonsoo Lee, Toshihiko Mukoyama, 07 January 2008
It is commonly believed that business cycles ‘cleanse’ industry with waves of creative destruction. New research shows that entry is higher in booms than busts, but exit rates and the type of exiting firms, are steady over the cycle. Plants entering during recessions, however, are larger and more productive –‘creative entry’ rather than ‘creative destruction’.