The Economic Scars of Crises and Recessions
By Valerie Cerra and Sweta C. Saxena
March 21, 2018
Version in 日本語 (Japanese), Português (Portuguese)
New study finds that all types of recessions lead to permanent losses in output and welfare (photo: Peshkov/iStock by GettyImages).
Economic recessions are typically described as short-term periods of negative economic growth. According to the traditional business cycle view, output moves up and down around its long-term upward trend and after a recession, it recovers to its pre-recession trend. Our new study casts doubt on this traditional view and shows that all types of recessions—including those arising from external shocks and small domestic macroeconomic policy mistakes—lead to permanent losses in output and welfare. […]