IDEAS home Printed from https://ideas.repec.org/p/fip/fedgif/1066.html
   My bibliography  Save this paper

Do recessions affect potential output?

Author

Listed:
  • Jane Haltmaier

Abstract

A number of previous studies have looked at the effect of financial crises on actual output several years beyond the crisis. The purpose of this paper is to examine whether the growth of potential output also is affected by recessions, whether or not they include financial crises. Trend per capita output growth is calculated using HP filters, and average growth is compared for the two years preceding a recession, the two years immediately following a recession peak, and the two years after that. Panel regressions are run to determine whether characteristics of recessions, including depth, length, extent to which they are synchronized across countries, and whether or not they include a financial crisis, can explain the cumulative four-year loss in the level of potential output following an output peak preceding a recession. The main result is that the depth of a recession has a significant effect on the loss of potential for advanced countries, while the length is important for emerging markets. These results imply that the Great Recession might have resulted in declines in trend output growth averaging about 3 percent for the advanced economies, but appear to have had little effect on emerging market trend growth.

Suggested Citation

  • Jane Haltmaier, 2012. "Do recessions affect potential output?," International Finance Discussion Papers 1066, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1066
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/ifdp/2012/1066/default.htm
    Download Restriction: no
    File URL: http://www.federalreserve.gov/pubs/ifdp/2012/1066/ifdp1066.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yap, Josef T. & Majuca, Ruperto P. & Park, Cyn-Young, 2010. "The 2008 Financial Crisis and Potential Output in Asia: Impact and Policy Implications," Discussion Papers DP 2010-11, Philippine Institute for Development Studies.
    2. Charles Steindel, 2009. "Implications of the financial crisis for potential growth: past, present, and future," Staff Reports 408, Federal Reserve Bank of New York.
    3. Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 822-832.
    4. Mr. Abdul d Abiad & Ms. Petya Koeva Brooks & Ms. Irina Tytell & Mr. Daniel Leigh & Mr. Ravi Balakrishnan, 2009. "What’s the Damage? Medium-term Output Dynamics After Banking Crises," IMF Working Papers 2009/245, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Quel est l'impact de la Grande Récession sur la production potentielle ?
      by ? in D'un champ l'autre on 2014-06-11 00:16:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Olivier Blanchard & Eugenio Cerutti & Lawrence Summers, 2015. "Inflation and Activity – Two Explorations and their Monetary Policy Implications," NBER Working Papers 21726, National Bureau of Economic Research, Inc.
    2. Brada, Josef C. & Gajewski, Paweł & Kutan, Ali M., 2021. "Economic resiliency and recovery, lessons from the financial crisis for the COVID-19 pandemic: A regional perspective from Central and Eastern Europe," International Review of Financial Analysis, Elsevier, vol. 74(C).
    3. Bindseil, Ulrich & Domnick, Clemens & Zeuner, Jörg, 2015. "Critique of accommodating central bank policies and the 'expropriation of the saver' - A review," Occasional Paper Series 161, European Central Bank.
    4. Paternesi Meloni, Walter & Romaniello, Davide & Stirati, Antonella, 2022. "Inflation and the NAIRU: assessing the role of long-term unemployment as a cause of hysteresis," Economic Modelling, Elsevier, vol. 113(C).
    5. Félix Jiménez, 2018. "Capacidad productiva, cambio técnico y productividad: Estimaciones alternativas del producto de largo plazo," Documentos de Trabajo / Working Papers 2018-454, Departamento de Economía - Pontificia Universidad Católica del Perú.
    6. repec:ecb:ecbops:2010161 is not listed on IDEAS
    7. Dovern, Jonas & Zuber, Christopher, 2020. "How economic crises damage potential output – Evidence from the Great Recession," Journal of Macroeconomics, Elsevier, vol. 65(C).
    8. Sturn, Simon & Epstein, Gerald, 2021. "How much should we trust five-year averaging to purge business cycle effects? A reassessment of the finance-growth and capital accumulation-unemployment nexus," Economic Modelling, Elsevier, vol. 96(C), pages 242-256.
    9. Aaron G. Grech, "undated". "Investigating potential output using the Hodrick-Prescott filter: an application for Malta," CBM Working Papers WP/02/2014, Central Bank of Malta.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdoulaye Millogo, 2020. "Hysteresis Effects and Macroeconomics Gains from Unconventional Monetary Policies Stabilization," Cahiers de recherche 20-12, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    2. Levieuge, Grégory & Lucotte, Yannick & Pradines-Jobet, Florian, 2021. "The cost of banking crises: Does the policy framework matter?," Journal of International Money and Finance, Elsevier, vol. 110(C).
    3. Mendieta-Muñoz, Ivan, 2017. "On The Interaction Between Economic Growth And Business Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 21(4), pages 982-1022, June.
    4. Dovern, Jonas & Zuber, Christopher, 2017. "The Effect of Recessions on Potential Output Estimates: Size, Timing, and Determinants," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168180, Verein für Socialpolitik / German Economic Association.
    5. Andersen, Henrik & Juelsrud, Ragnar Enger, 2024. "Optimal capital adequacy ratios for banks," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 5(2).
    6. Yap, Josef T. & Majuca, Ruperto P. & Park, Cyn-Young, 2010. "The 2008 Financial Crisis and Potential Output in Asia: Impact and Policy Implications," Discussion Papers DP 2010-11, Philippine Institute for Development Studies.
    7. Charles, Steindel, 2010. "The Financial Crisis and the Measurement of Financial Sector Activity," MPRA Paper 27240, University Library of Munich, Germany.
    8. Abdoulaye Millogo, 2020. "Hysteresis effects and financial frictions," Cahiers de recherche 20-14, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    9. Douglas Sutherland & Peter Hoeller & Balázs Égert & Oliver Röhn, 2010. "Counter-cyclical Economic Policy," OECD Economics Department Working Papers 760, OECD Publishing.
    10. Kondoz, Mehmet & Kirikkaleli, Dervis & Athari, Seyed Alireza, 2021. "Time-frequency dependencies of financial and economic risks in South American countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 170-181.
    11. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    12. Albonico, Alice & Tirelli, Patrizio, 2020. "Financial crises and sudden stops: Was the European monetary union crisis different?," Economic Modelling, Elsevier, vol. 93(C), pages 13-26.
    13. Guillermo Calvo & Fabrizio Coricelli & Pablo Ottonello, 2014. "Jobless Recoveries during Financial Crises: Is Inflation the Way Out?," Central Banking, Analysis, and Economic Policies Book Series, in: Sofía Bauducco & Lawrence Christiano & Claudio Raddatz (ed.),Macroeconomic and Financial Stability: challenges for Monetary Policy, edition 1, volume 19, chapter 11, pages 331-381, Central Bank of Chile.
    14. O. Fiona Yap, 2020. "A New Normal or Business-as-Usual? Lessons for COVID-19 from Financial Crises in East and Southeast Asia," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 32(5), pages 1504-1534, December.
    15. Tyler Atkinson & David Luttrell & Harvey Rosenblum, 2013. "How bad was it? The costs and consequences of the 2007–09 financial crisis," Staff Papers, Federal Reserve Bank of Dallas, issue Jul.
    16. Charles Steindel, 2009. "Implications of the financial crisis for potential growth: past, present, and future," Staff Reports 408, Federal Reserve Bank of New York.
    17. Klein, Paul-Olivier & Weill, Laurent, 2022. "Bank profitability and economic growth," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 183-199.
    18. Wilms, Philip & Swank, Job & de Haan, Jakob, 2018. "Determinants of the real impact of banking crises: A review and new evidence," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 54-70.
    19. Oana Peia, 2017. "Banking Crises and Investments in Innovation," Working Papers 201727, School of Economics, University College Dublin.
    20. Goossens, Roman & Mori, Rogério & Teles, Vladimir Kuhl, 2014. "Do capital controls boost EME´s resilience to financial crises?," Textos para discussão 370, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:1066. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.