Growth Dynamics: The Myth of Economic Recovery

By Valerie Cerra, S. Saxena. Social Science Research Network, 2005

1,432 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/ee745c5538bad5d98a030b0511b72059466d8459

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Citations in the corpus

The pre-Great Recession slowdown in productivity (2015, background): “There is some evidence that deep recessions (financially related or otherwise) may cast “long shadows” (Fatas, 2000)—permanently reducing the level of GDP compared with its pre-recession trend (e.g., Cerra and Saxena, 2008, Martin and Wilson, 2013, and Blanchard et al. 2015).”
Monetary Policy, the Financial Cycle and Ultralow Interest Rates (2016, background): “…may return to its pre-crisis long-term trend, but output does not, so that a permanent gap develops between the pre- and post-recession output trends (Cerra and Saxena (2008), BCBS (2010), Ball (2014)).3 This evidence calls into question the validity of standard presumptions that cyclical…”
Unmitigated Disasters? New Evidence on the Macroeconomic Cost of Natural Catastrophes (2012, neutral): “However, Nickell (1981) has shown that the estimation bias is of order 1/T , which is small for this dataset, and smaller than in Cerra and Saxena (2008) who also follow this approach.”
How Costly are Debt Crises? (2011, neutral): “14 The approach was initially proposed by Romer and Romer (1989) and then recently applied by Cerra and Saxena (2008), Furceri and Mourougane (2009), and Furceri and Zdzienicka (2011) to assess the long-term impact of banking crises on economic activity.”
Learning from History: Volatility and Financial Crises (2016, background): “Institutional characteristics and governance of a country can affect political and macroeconomic stability (Alesina et al., 1992; Acemoglu et al., 2003; Cerra and Saxena, 2008).”
Asset Bubbles, Endogenous Growth, and Financial Frictions (2010, neutral): “[13] Cerra, Valerie, and Sweta Chaman Saxena.”