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World Economic Outlook April 2009

World Economic Outlook April 2009. Chapter III From Recession to Recovery: How Soon and How Strong?. Prepared by: Prakash Kannan, Alasdair Scott and Marco Terrones with support from Gavin Asdorian and Emory Oakes. Questions.

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World Economic Outlook April 2009

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  1. World Economic Outlook April 2009

  2. Chapter IIIFrom Recession to Recovery: How Soon and How Strong? Prepared by: Prakash Kannan, Alasdair Scott and Marco Terrones with support from Gavin Asdorian and Emory Oakes

  3. Questions • Are recessions and recoveries associated with financial crises different from others? • What are the main features of globally synchronized recessions? • Can countercyclical policies help shorten recessions and strengthen recoveries?

  4. We Examine Business Cycles in 21 Advanced Economies … • Excluding the current recessions, there were 122 recessions since 1960. Of which: • 15 were associated with financial crises • 37 were globally synchronized (1975, 1980 and 1992). • 6 were both associated with financial crises and globally synchronized.

  5. Recessions and Recoveries are Longer when Global and associated w/ Financial Crises … Recessions Recoveries

  6. Mainly Reflecting Consumption Dynamics …(Median = 100 at t = 0; peak in output at t = 0) Highly Synchronized Recessions Financial Crises

  7. Which, in turn, Reflect House Prices Dynamics …(Median = 100 at t = 0; peak in output at t = 0) Highly Synchronized Recessions Financial Crises

  8. Exports Play Important Role in Recovery …(Median = 100 at t = 0; peak in output at t = 0) Highly Synchronized Recessions Financial Crises

  9. Policies Help Shorten Recessions … Fiscal Stimulus is Effective in Financial Crises … (Probability of remaining in a recession beyond a certain number of quarters)

  10. … Effectiveness of Fiscal Policy Affected by Public Debt Levels …

  11. Current Recessions Likely to Be Severe … (Median log differences from one year earlier; peak in output level at t = 0; quarters on x-axis) Current U.S. recession 50 percent interval of previous recessions Unemployment Rate (median percentage point difference from one year earlier) Output Private Consumption Residential Investment

  12. … with Potentially Weak Recoveries …(Median log differences from one year earlier; peak in output level at t = 0; quarters on x-axis) Current U.S. recession 50 percent interval of previous recessions Credit House Prices Equity Prices Nominal Interest Rate (median percentage point difference from one year earlier) Government Consumption

  13. Policy Message • The current recessions are likely to be long lasting and severe with weak recoveries …. • Monetary and fiscal policies can help reduce the duration of the current recessions and strengthen economic recovery …

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