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Booms, Crises, and Recoveries
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Booms, Crises, and Recoveries

A New Paradigm of the Business Cycle and Its Policy Implications

Valerie Cerra and Sweta C. Saxena
IMF, 2017
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Editorial Rating

8

Qualities

  • Comprehensive
  • Analytical
  • For Experts

Recommendation

For economists, sluggish growth in the United States and around the globe following the Great Recession seemed a bit confusing. After all, the prevailing wisdom was that rapid growth and labor gains in the recovery would subsequently offset GDP contractions and high unemployment. The reality, however, was quite different. IMF professionals Valerie Cerra and Sweta C. Saxena posit that the output gaps seen in this recovery were quite normal and that the business cycle is not all that cyclical. getAbstract recommends this robust but technical report to economists and analysts.

Summary

From the depths of the Great Recession, economists predicted that GDP growth in the United States would quickly snap back to precrisis levels. Experts reasoned that, because a cycle of contraction and then rebound had occurred following every previous recession after World War II, this downturn would undoubtedly repeat the phenomenon. Yet from 2010 to 2017,  average annual GDP growth fell sharply, to 2.1% in the United States and 3.8% globally, from 2.7% and 4.5% in 2000–2007. This level of “output loss” is not new. A study of 190 economies reveals that output plummets permanently by 5% after a balance of payments...

About the Authors

Valerie Cerra and Sweta C. Saxena are International Monetary Fund professionals.

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