Resilience and specialization – How German regions weathered the Great Recession
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Abstract This paper takes an explorative approach for analyzing the economic development of German Spatial Planning Regions during and after the Great Recession covering the period from 2007 to 2017. Specifically, we are interested in the relation between the short- and the mid-term resilience of regions and in the role of the underlying economic structure in this regard. For this purpose, we categorize regions by their GDP per capita growth in the resistance and recovery phase and then characterize the resulting region types by their average structural characteristics and track their performance through the renewal and reorientation phase. Our analysis reveals that, in general, larger shares of manufacturing, higher degrees of export orientation and specialization, and lower shares of public sector services are associated with weaker resilience and stronger recovery capacity. In addition, we observe a catch-up effect of regions with at least either an above-average resistance or recovery compared to regions with both weak resistance and slow recovery. However, we do not find a substantial reorientation effect because, in the case of Germany, the advantages of regional economic specialization still outweigh its potential disadvantages.Keywords:
Resilience
Abstract This paper investigates expert revisions of potential output (PO) estimates following recessions. Using data from the Organisation for Economic Co‐operation and Development (OECD), we show that downward revisions are substantial, permanent, and mostly driven by supply shocks. In contrast, PO estimates do not significantly react to demand shocks. Revisions are also partly caused by mismeasurement of PO before recessions. In particular, we show that the length of the preceding boom and pre‐recession values of the current account balance and credit volumes are correlated with post‐recession PO revisions. Our results call for improved methods for estimating PO and provide evidence against the existence of substantial hysteresis following demand shocks.
Hysteresis
Potential output
Demand shock
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Economists have been arguing about the connection between unemployment and inflation for decades. Critics claim that the connection is unreliable and leads policymakers astray, while others argue that the relationship is useful for forecasting. We examine the more direct connections between elevated unemployment levels and the rate of increase in wage and labor costs, more generally. We find that wage and labor cost growth has declined markedly following recent recessions. It has again declined sharply in the most recent recession. We also find that compensation typically remains subdued during the initial phases of recent recoveries. This is again the case in the current recovery, making labor costs a significant restraining force on inflation going forward.
Misery index
Great recession
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Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions often reflect periods of needed liquidation resulting from past over-investment. According to the main proponents of this view, government spending or any other form of aggregate demand policy should not be used to mitigate such a liquidation process, as doing so would simply result in a needed adjustment being postponed. In contrast, ever since the work of Keynes, many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy. In this paper we reexamine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets. The model illustrates why liquidations likely cause recessions characterized by deficient aggregate demand and accordingly suggests that Keynes' and Hayek's views of recessions may be closely linked. In our framework, interventions aimed at stimulating aggregate demand face a trade-off whereby current stimulus postpones the adjustment process and therefore prolongs the recessions, but where some stimulative policies may nevertheless remain desirable.
Stimulus (psychology)
Investment
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The hypothesis of this paper is alcohol consumption will decrease when a country experiences a recession. We have used data covering the yearly consumption (in litres per capita) of alcohol from the World Health Organization (2015), combined with yearly & quarterly GDP data from the OECD website (2015) to firstly identify years where there have been more than 2 periods of negative growth (recession), and to compare these data sets to see if any relationship exists.We have used correlation analysis between the financial data and the consumption data, as well as scatter graphs to see if there is a high correlation (0.7) or a trend, for 3 countries that have experienced a recession over the last 15 years (US, Finland & Greece). What we found is that some types of alcohol did appear to show both positive and negative relationships to GDP or recession but this relationship differed between countries. There are other factors that must be considered including cultural relationship to alcohol in different locations, as well as any government or social programs.
Consumption
Negative correlation
Positive correlation
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Fiscal multiplier
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This article explores the implications of hysteresis for the welfare costs of recessions by extending the textbook New Keynesian model to include hysteresis. Hysteresis implies that recessions reduce the level of potential output. Famously Lucas (1987, 2003) argued that the welfare costs of business cycles are negligible without hysteresis. This article demonstrates that the welfare costs of recessions are huge (negligible) in the New Keynesian model with (without) hysteresis. The main finding is that an empirically observed degree of hysteresis increases the welfare costs of a recession by a factor of 121. The results are in contrast with Lucas (1987, 2003), who concluded that only changes in the long-term growth rate of consumption have a significant welfare effect. The welfare costs of recessions can be huge without a change in the long-term growth rate of consumption. Hysteresis therefore implies that stabilization policy should respond forcefully to recessions.
Hysteresis
Consumption
New Keynesian economics
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A regional economy perturbed by a shock may move onto a new growth path by reestablishing economic linkages both internally and with other regions. This dynamic property of regions has recently been explained in terms of regional economic resilience. In this paper, we introduce a more refined measure of economic resilience and then apply it to monthly employment data for U.S. counties in the 2007-2009 downturn. We suggest that describing and analyzing the distinct response patterns during this downturn are important starting points for policy makers to understand the spatial resilience of the US economy.
Resilience
Great recession
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This paper considers a correlated unobserved-components model for output, employment, and hours in order to disentangle the causes for the last three jobless recoveries. The composition of the structural shocks during recessions and the periods immediately following recessions has changed, as have the responses of employment and hours to those shocks. Recessions before 1984 were followed by recoveries driven by positive permanent shocks to output, whereas post-1984 recessions were followed by weak recoveries in demand. Employment is more sensitive to demand shocks post-1984, leading to weak recoveries in employment. In addition, hours and employment were complements before 1984, but are treated as substitutes after 1984. Much of the initial decrease in demand is now absorbed on the intensive margin.
Margin (machine learning)
Demand shock
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Henri Piatier recounts how, as a captive of the Germans, and with the agreement of Frederic Joliot and Louis Leprince-Ringuet, he worked in German laboratories. Then, in collaboration with his friend Paul Rosbaud, the scientific director of the German publisher Springer-Verlag, he took an active role in the Resistance.
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