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Newsletter
Which Leading Indicators Have Done Better at Signaling Past Recessions?
In this article, I analyze a broad range of leading indicators?economic or financial data series that change in advance of the rest of the economy?to see which ones have done better at signaling past U.S. recessions.1 I also use these leading indicators to form a new index that outperforms existing leading indexes and the Treasury yield curve at signaling historical downturns.
Is the U.S. in a Recession? What Key Economic Indicators Say
The majority of economic indicators that the NBER Business Cycle Dating Committee tracks to identify U.S. recessions are still showing growth. How have these measures behaved around past recessions?
Working Paper
Bubbly Recessions
We develop a tractable rational bubbles model with financial frictions, downward nominal wage rigidity, and the zero lower bound. The interaction of financial frictions and nominal rigidities leads to a "bubbly pecuniary externality," where competitive speculation in risky bubbly assets can result in excessive investment booms that precede inefficient busts. The collapse of a large bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent and inefficient recession. We evaluate a ...
Working Paper
Bad Times, Bad Jobs? How Recessions Affect Early Career Trajectories
Workers who enter the labor market during recessions experience lasting earnings losses, but the role of non-pay amenities in either exacerbating or counteracting these losses remains unknown. Using population-scale data from Germany, we find that labor market entry during recessions generates a 6 percent reduction in earnings cumulated over the first 15 years of experience. Implementing a revealed-preference estimator of employer quality that aggregates information from the universe of worker moves across employers, we find that one-quarter of recession-induced earnings losses are ...
Working Paper
Place-Based Consequences of Person-Based Transfer: Evidence from Recessions
This paper studies how government transfers respond to changes in local economic activity that emerge during recessions. Local labor markets that experience greater employment losses during recessions face persistent relative decreases in per capita earnings. However, these areas also experience persistent increases in per capita transfers, which offset 16 percent of the earnings loss on average. The increase in transfers is driven by unemployment insurance in the short run, and medical, retirement, and disability transfers in the long run. Our results show that nominally place-neutral ...
Not All Bursting Market Bubbles Have the Same Recessionary Effect
The popped IT bubble ushered in an eight-month recession in 2001. The burst housing bubble resulted in the Great Recession (2007-09). Why the difference?
Newsletter
Why Does the Yield-Curve Slope Predict Recessions?
Many studies document the predictive power of the slope of the Treasury yield curve for forecasting recessions.2 This work is motivated, for example, by the empirical evidence in figure 1, which shows the term-structure slope, measured by the spread between the yields on ten-year and two-year U.S. Treasury securities, and shading that denotes U.S. recessions (dated by the National Bureau of Economic Research). Note that the yield-curve slope becomes negative before each economic recession since the 1970s.3 That is, an ?inversion? of the yield curve, in which short-maturity interest rates ...
Journal Article
Does Fiscal Stimulus Work when Recessions Are Caused by Too Much Private Debt?
We argue that fiscal stimulus funded by public debt is effective for increasing economic activity and employment even in recessions that are caused by overborrowing in the private sector. We analyze the impact of government spending on local economies between 2007 and 2009 and find evidence that the fiscal multiplier is higher in geographical areas characterized by higher individual household debt. The higher multiplier in those areas might be attributed to a direct increase in both household consumption and local economic slack.
Working Paper
The Active Role of the Natural Rate of Unemployment during Cyclical Recoveries
We propose that the natural rate of unemployment has an active role in the business cycle, in contrast to the prevailing view that the rate is essentially constant. We demonstrate that this tendency to treat the natural rate as near-constant would explain the surprisingly low slope of the Phillips curve. We show that the natural rate closely tracked the actual rate during the long recovery that began in 2009 and ended in 2020. We explain how the common finding of research in the Phillips-curve framework of low-often extremely low-response of inflation to unemployment could be the result of ...
Dating Economic Recessions in Real Time Is a Challenge
Backward-looking data and regular data revisions are among the challenges facing the NBER when determining whether the economy is in a recession.