The Universal Shape of Economic Recession and Recovery after a Shock

Abstract We show that a simple and intuitive three-parameter equation fits remarkably well the evolution of the gross domestic product (GDP) in current and constant dollars of many countries during times of recession and recovery. We then argue that this equation is the response function of the economy to isolated shocks, hence that it can be used to detect large and small shocks, including those which do not lead to a recession; we also discuss its predictive power. Finally, a two-sector toy model of recession and recovery illustrates how the severity and length of recession depends on the dynamics of transfer rate between the growing and failing parts of the economy.

• Publication year

  2008

• Venue

  Economics

• Publication date

  2008-02-14

• Fields of study

  Physics, Economics

• Identifiers
  DOI 10.5018/ECONOMICS-EJOURNAL.JA.2009-36arXiv 0802.2004
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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