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Growth dynamics: the myth of economic recovery

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Author Info
Valerie Cerra
Sweta Chaman Saxena

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Abstract

Using panel data for a large number of countries, we find that economic contractions are not followed by offsetting fast recoveries. Trend output lost is not regained, on average. Wars, crises, and other negative shocks lead to absolute divergence and lower long-run growth, whereas we find absolute convergence in expansions. The output costs of political and financial crises are permanent on average, and long-term growth is negatively linked to volatility. These results also imply that panel data studies can help identify the sources of growth and that economic models should be capable of explaining growth and fluctuations within the same framework.

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Publisher Info
Paper provided by Bank for International Settlements in its series BIS Working Papers with number 226.

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Length: 41 pages
Date of creation: Mar 2007
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Handle: RePEc:bis:biswps:226

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Related research
Keywords: growth; output loss; recessions; crises; wars; business cycles; recovery;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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