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Does US GDP stall?

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  • Wai-Yip Alex Ho
  • James Yetman

Abstract

Low positive GDP growth has been interpreted as evidence that the economy may be "stalling", implying that low growth is a strong predictor of future recessions. We examine the empirical evidence for stalling based on kernel density estimates, probit estimates and Markov switching models. Whether we find evidence for stalling or not depends crucially on how a stall is defined. If we define a stall as a low but positive growth rate, then there is no evidence of stalling in US GDP. Low growth is as likely to be followed by higher growth as by a recession. In contrast, if we define a stall as a decline in the growth rate of the economy to below some threshold, we find evidence for stalling.We also discuss the merits of each of the definitions of stalling, and limitations in using aeronautical analogies for discussing the business cycle.

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  • Wai-Yip Alex Ho & James Yetman, 2012. "Does US GDP stall?," BIS Working Papers 387, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:387
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    References listed on IDEAS

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    1. Michael D. Bordo & Joseph G. Haubrich, 2017. "Deep Recessions, Fast Recoveries, And Financial Crises: Evidence From The American Record," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 527-541, January.
    2. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
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    Cited by:

    1. Carstensen, Kai & Heinrich, Markus & Reif, Magnus & Wolters, Maik H., 2020. "Predicting ordinary and severe recessions with a three-state Markov-switching dynamic factor model," International Journal of Forecasting, Elsevier, vol. 36(3), pages 829-850.
    2. Proaño, Christian R. & Tarassow, Artur, 2018. "Evaluating the predicting power of ordered probit models for multiple business cycle phases in the U.S. and Japan," Journal of the Japanese and International Economies, Elsevier, vol. 50(C), pages 60-71.
    3. Heinrich, Markus & Carstensen, Kai & Reif, Magnus & Wolters, Maik, 2017. "Predicting Ordinary and Severe Recessions with a Three-State Markov-Switching Dynamic Factor Model. An Application to the German Business Cycle," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168206, Verein für Socialpolitik / German Economic Association.
    4. Diggle, Paul & Bartholomew, Luke, 2022. "'Stall Speed' and 'Escape Velocity': Empty Metaphors or Empirical Realities?," CEPR Discussion Papers 14290, C.E.P.R. Discussion Papers.
    5. Wai-Yip Alex Ho & James Yetman, 2014. "Do economies stall?," Applied Economics, Taylor & Francis Journals, vol. 46(35), pages 4267-4275, December.

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    Keywords

    Business cycles; stall speed; Markov switching;
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