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Will the Economic Recovery Die of Old Age?

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Will the Economic Recovery Die of Old Age?

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Was ist drin?

As Federal Reserve Chair Janet Yellen has pointed out, age is just a number when it comes to forecasting an economic slowdown

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Editorial Rating

9

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  • Innovative

Recommendation

Given that the current economic recovery in the United States began in 2009, some observers think that an economic slowdown is long overdue. But does a long recovery necessarily translate into an inevitable reversal of economic fortune? Or are periodic short-term stumbles just parts of the aging process that occur in a normal, growing economy? Federal Reserve Chair Janet Yellen believes “it’s a myth that expansions die of old age.” Economist Glenn D. Rudebusch finds support for Yellen’s observation in this eye-opening examination of post–World War II recoveries, which getAbstract recommends to economists and others interested in a new take on forecasting trends.

Summary

The underlying rationale for the common belief that economic recoveries are likely to end as they mature is somewhat akin to the thinking on human aging: As the expansion gets older, this reasoning suggests, it weakens and becomes more susceptible to even minor blows. But historical evidence from after World War II does not support this thesis. Instead, it finds that the length of an economic expansion is unrelated to its expiry date.

“Survival analysis” – a study of how “probabilities change over time” – helps explain this phenomenon. Life insurance ...

About the Author

Glenn D. Rudebusch is director of research at the Federal Reserve Bank of San Francisco.

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