Are Recoveries all the Same: GDP and TFP?*

Abstract

Recessions and subsequent recoveries are frequently classified as ‘L‐shaped’ or ‘U‐shaped’, with output losses in the former being permanent and losses in the latter at least partially made up by higher than average growth during the recovery. We estimate the probability of a U‐shaped recovery for postwar NBER recessions. Most earlier recessions were U‐shaped but more recent recessions have been L‐shaped. The shape of recoveries is tracked relatively well by durable consumption, investment, labour hours and employment. Posterior probabilities for the shape of recoveries for nondurable consumption and participation rate are less decisive. However, total factor productivity appears to recover rapidly after all recessions.

The shape of business cycles: A cross‐country analysis of Friedman's plucking theory

“…For instance, Fernald et al (2017) and Yagan (2019) find that large unemployment shocks still had sizable negative effects on working age employment rates even many years after the GFC shock struck. This is confirmed also by Luo et al's (2021) analysis of US recessions, who conclude that employment rates have followed an L‐shape rather than a U‐shape after recent recessions.…”