Crisis, potential output and hysteresis

Mourougane, Annabelle

doi:10.1016/j.inteco.2016.07.001

Cited by 14 publications

(10 citation statements)

References 37 publications

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“…Hysteresis is a permanent loss of potential output level if output gap is below a given threshold. Such an effect on output level is in line with Mourougane (2017), who finds large hysteresis effects on potential GDP level but no effect on long-run potential growth. The threshold enables to associate hysteresis with large negative output, in line with the literature on hysteresis that focuses on deep recession (e.g.…”

Section: B Output and Fiscal Policysupporting

confidence: 84%

A Buffer-Stock Model for the Government

Fournier¹

2019

IMF Working Papers

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A fiscal reaction function to debt and the cycle is built on a buffer-stock model for the government. This model inspired by the buffer-stock model of the consumer (Deaton 1991; Carroll 1997) includes a debt limit instead of the Intertemporal Budget Constraint (IBC). The IBC is weak (Bohn, 2007), a debt limit is more realistic as it reflects the risk of losing market access. This risk increases the welfare cost of fiscal stimulus at high debt. As a result, the higher the debt, the less governments should smooth the cycle. A larger reaction of interest rates to debt and higher hysteresis magnify this interaction between the debt level and the appropriate reaction to shocks. With very persistent shocks, the appropriate reaction to negative shocks in highly indebted countries can even be procyclical.

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Section: B Output and Fiscal Policysupporting

confidence: 84%

A Buffer-Stock Model for the Government

Fournier¹

2019

IMF Working Papers

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“…Several studies have documented protracted losses in output or productivity following business cycle downturns, recessions, or financial crises (Blanchard, Cerutti, and Summers 2015;Hall 2014). This chapter builds on and broadens previous work (Easterly et al 1993;Kilic Celik et al forthcoming;Mourougane 2017;Noy 2009), by assessing the channels, the magnitude of the losses, and the speed of recovery across a wide range of different types of adverse events.…”

Section: Contributionsmentioning

confidence: 86%

Global Productivity: Trends, Drivers, and Policies

Dieppe

2020

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Productivity growth is the key driver of sustainable income growth and poverty reduction. Its effects on human welfare are enormous. While economists agree on the importance of productivity, its measurement and drivers remain elusive. We sometime refer to productivity as a "residual" or even as a "measure of our ignorance." This important book analyzes the trends and drivers of productivity growth, with a special focus on emerging and developing countries. It uses state-ofthe-art econometric techniques and brings together the analysis of a wide range of productivity drivers which, so far, have been analyzed in isolation. It also discusses the impact of COVID-19 on productivity growth. Reading this book will help in reducing our ignorance on the most important driver of human well-being.

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“…They find that financial crises have a negative and persistent impact on potential output. Mourougane () explicitly accounts for hysteresis effects in a local projection framework and concludes that such effects magnify the impact of crises on potential output. Reifschneider et al () focus more closely on the experience of the United States in recent years and conclude that potential output has fallen significantly since the onset of the global financial crisis, with much of the aggregate supply response being endogenous to the collapse of aggregate demand.…”

Section: Review Of the Literaturementioning

confidence: 99%

Financial Crises, Output Losses, and the Role of Structural Reforms

Tola

Waelti

2017

Economic Inquiry

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Financial crises take a heavy toll on output growth. We assess the role of structural reforms in reducing the output losses resulting from financial crises across advanced economies, emerging and developing economies, and low‐income developing economies. We also revisit the role of macroeconomic policies in this context. The impact of crises on output growth differs between types of crises and economies, thus warranting sample splits along these lines. Some but not all reforms and policies help to reduce the output losses of crises in the medium term, highlighting the need not to overgeneralize the effectiveness of reforms and policies. Further research is warranted to further explore the heterogeneity in the impact of financial crises on output growth and to better understand when and how specific structural reforms and macroeconomic policies can mitigate the output costs of financial crises. (JEL E32, E44, E63, G28, O47)

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Crisis, potential output and hysteresis

Cited by 14 publications

References 37 publications

A Buffer-Stock Model for the Government

A Buffer-Stock Model for the Government

Global Productivity: Trends, Drivers, and Policies

Financial Crises, Output Losses, and the Role of Structural Reforms

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