A Few Relationships Between Expansions and the Recessions that Follow Them
A Few Relationships Between Expansions and the Recessions that Follow Them
by cactus
Good evening, and welcome. Last week I had a post looking at the recessions since 1929 (i.e., since the BEA began computing GDP data). Each recession was ranked according to its length and severity, and by the political party of the President under which the recession began.
This week I’d like to take a slightly different tack. This week we will look at how the length and severity of a recession are affected by the length and “growthiness” of the expansion that preceded it. Before we go on… data on real GDP per capita comes from BEA, which is available annually from 1929 to 1946 and quarterly thereafter. I did no smoothing – that is to say… for an event that occurred in January, February, or March of 2001, as an example, I used figures for Q1 of 2001. Recession cycle dates came from the NBER. OK. The preliminaries are out of the way, so ready, set and go.
The first graph shows the median annualized reduction in real GDP per capita as compared to the median length of the earlier expansion. Assuming I didn’t make a mistake (its 3AM as I write this) – the graph shows that in general, the longer the previous expansion, the less severe the shrinkage during the recession.
There isn’t nearly as strong a relationship between the speed of economic growth during the expansion and the speed of the decline during the recession.
(BTW… if you’re wondering, yes, count of previous expansion lengths = count of previous expansion rates + 1. This is because we do not have data on real GDP per capita prior to 1929, but we do know how many months there are in the expansion prior to the Great Depression.)
What about the length of the previous recovery. The following graph shows us that longer expansions typically result in shorter recessions.
There does not, however, seem to be a clear relationship between the speed of the expansion and the length of the recession.
So… the speed of the expansion isn’t clearly related to the severity or length of the recession. However, the length of time between recessions does affect both the severity of the recession and how long it lasts.
Next week… the relationship between the recessions and subsequent expansion.
Is this a “great moderation” exposition? That is to say, longer expansion followed by shorter recession describes the post-1983 period, while shorter expansion => longer recession describes the period up to 1983? Similarly, long expansion and shallow recession are also combined in the “great moderation” period, shorter expansion and deeper recession combined in the period before the “great moderation”?
I tend to break the data down between the 1850-1950 period versus the post 1950 era.
This compares the era of small government in the earlier era versus the era of big government in the post 1950 era. Before 1950 business cycles were much more frequent and the trend growth in per capita real gdp was significantly slower. For example according to the NBER from 1850 to 1919 the average peace time cycle was 22 months in a recession and 24 months in an expanison. by comparisons since 1945 the average has been 19 months in a recession and 52 months in an expansion.
But try going to a liberaterian/conservative blog and quote this data and it will create the biggest fit of denial you have ever heard. Of course the people fighting with you over this will completely forget these facts as soon as they can.
kharris,
Never thought about it. To be honest, I have sort of a mental block about the “great moderation.” (I think this is the first time I actually typed or uttered those words.) I’ve been suspicious about the concept since I first heard the time, frankly, so its hard for me to think about it.
spencer,
I disagree with you completely. My experience is that the biggest fit of denial comes when you back someone into a corner where he has to calculate the growth rate from 1933 to 1940 (or 1938, when they start talking Lend-Lease).
The “Great Moderation” is actually the Great Stagnation.
The M1 multiplier has been in steady decline since the begining of the Reagan administration. Ditto, GDP growth Yr over Yr.
http://jazzbumpa.blogspot.com/2010/03/hriveling.html
Also, Wealth disparity has increased over that same time span, while compensationn in the finance sector has gone into the stratophere — Just like the in the 20’s.
http://baselinescenario.com/2010/05/03/whos-got-those-pitchforks/#more-7378
Here is an interestingly cynical view.
http://www.informationclearinghouse.info/article25367.htm
Capitalism really looks like it’s exhausted.
JzB
JzB,
Not capitalism – this variety of Reaganny pseudo-capitalism.
cactus,
I had in mind simply the facts in the data when I mentioned the “Great Moderation”, rather than any attempts to explain it. There was a large, sudden reduction in the volatility of most major economic indicators in the early 1980s. If the pattern you observe is a reflection of that sudden moderation, then knowing that means we know one more thing about the pattern of recessions. C’mon. You can do this.
There was also a moderation of volatility after WW II. the post 1980 great moderation ws actually the second great moderation.
kharris,
Not the next post, as I know what I’m writing then, but perhaps the one after… I’ll see if I remember to check on this. Not sure how much material there will be, but perhaps I’ll be able to find some relationship between time periods (including this Great Moderation period) and the length or severity of a recession.
bisnis internet
emmmmmm….