Why Has the U.S. Economy Stagnated since the Great Recession?

Abstract

Since the Great Recession in 2007-09, U.S. real GDP has failed to return to its previously projected path, a phenomenon widely associated with secular stagnation. We investigate whether this stagnation was due to hysteresis effects from the Great Recession, a persistent negative output gap following the recession, or slower trend growth for other reasons. To do so, we develop a new Markov-switching time series model of output growth that accommodates two different types of recessions, those which permanently alter the level of real GDP and those with only temporary effects. We also account for structural change in trend growth. Estimates from our model suggest that the Great Recession generated a large persistent negative output gap rather than any substantial hysteresis effects, with the economy eventually recovering to a lower trend path which appears to be due to a reduction in productivity growth that began prior to the onset of the Great Recession.

A unified approach for jointly estimating the business and financial cycle, and the role of financial factors

“…An alternative specification dates a break in 2006Q2, which is consistent with wider work (e.g. Berger, Everaert, and Vierke, 2016;Eo and Morley, 2020;Kamber, Morley, and Wong, 2018) dating a slowdown in GDP growth just before the Great Recession. 28 We note that the inherent uncertainty of whether, and if so when, a break in the drift in U.S. real GDP has occurred is not entirely surprising given the mixed evidence on the issue (see, e.g.…”

Financial Factors and the Business Cycle

“…An alternative specification can date a break in 2006Q2, which is consistent with wider work (e.g. Berger, Everaert, and Vierke, 2016;Eo and Morley, 2017;Kamber, Morley, and Wong, 2018) dating a slowdown in GDP growth just before the Great Recession. 17 We note that the inherent uncertainty of whether, and if so when, a break in the drift in U.S. real GDP has occurred is not entirely surprising given the mixed evidence on the issue (see, e.g.…”

Business and Financial Cycles in a Globalized World

“…An alternative specification dates a break in 2006Q2, which is consistent with wider work (e.g. Berger et al, 2016;Eo and Morley, 2022 ;Kamber et al, 2018 ) dating a slowdown in GDP growth just before the Great Recession. 26 We note that the inherent uncertainty of whether, and if so when, a break in the drift in U.S. real GDP has occurred is not entirely surprising given the mixed evidence on the issue (Check and Piger, 2020) .…”