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Board of Governors of the Federal Reserve SystemInternational Finance Discussion PapersNumber 1037, November 2011 --- Screen ReaderVersion*

# Are Recoveries from Banking and Financial Crises Really SoDifferent?

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Abstract:

This paper studies the behavior of recoveries fromrecessions across 59 advanced and emerging market economies overthe past 40 years. Focusing specifically on the performance ofoutput after the recession trough, we find little or no differencein the pace of output growth across types of recessions. Inparticular, banking and financial crisis do not affect the strengthof the economic rebound, although these recessions are more severe,implying a sizable output loss. However, recovery does change withsome characteristics of recession. Recoveries tend to be fasterfollowing deeper recessions, especially in emerging markets, andtend to be slower following long recessions. Most recessions areassociated with a slowing, if not outright decline in house prices,but recessions with large declines in house prices also tend tohave slower recoveries. Long recessions and those associated withpoor housing-market outcomes can lead to sustained output lossesrelative to pre-crisis trends. Consistent with microeconomicstudies showing permanent income loss to job-losing workers duringrecessions, we find that the sustained deviation in output fromtrend is associated with a reduction in labor input, especiallylinked to declines in employment and labor-force participationfollowing recessions. On net, our results imply that theoutput/employment gap following a severe, long recessions isconsiderably smaller than is typically assumed by standard macromodels, which in turn may have substantial implications formacroeconomic policy during recoveries.

Keywords: International, business cycles, recoveries, labormarket, potential output, United States

JEL classification: E32 , E20, F44

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More than two years after the date the NBER set for the end ofthe U.S. recession, U.S. employment growth remains sluggish, thehousing market is moribund, and GDP has barely exceeded itspre-recession peak. Thus, attention is increasingly focusing on thedeterminants and characteristics of recoveries. Although researchon the causes and types of recessions is legion, there has beensurprisingly little academic work that concentrates onrecoveries.1 That said, two stylized facts havebeen frequently cited in the current policy discussion. The firstis that recoveries from banking and financial crises are typicallyslow, reflecting impaired financial intermediation and the need forstructural adjustment (see Cerra and Saxena (2008) and Reinhart andReinhart (2010)). The second is that the rate of growth followingdeep recessions is typically faster than average, given pent-updemand and large stocks of underutilized labor and capital. As theGreat Recession was both a banking and financial crisis andassociated with a deep decline in output, these stylized factsimply different trajectories for output growth in thisrecovery.

To address this uncertainty and to gain greater insight into thenature of recoveries, defined as output growth following recessiontroughs, we examine quarterly data on GDP over the past 40 yearsfor almost 60 countries, split roughly evenly between the advancedand the emerging market economies, resulting in observations on271 recessions. Classifying recessions according to whether ornot they included a banking or financial (B&F) crisis we find,in contrast to earlier work, that there is little distinction inthe pace of recovery across recession types. Although recessionsassociated with B&F crises are typically more severe, thesubsequent recoveries are not particularly unusual. Earlier work,finding the opposite, does so because it characterizes the pace ofrecoveries by averaging growth starting from the pre-recessioncyclical peak rather than the recession trough, thus confoundingthe strength of the recession with the behavior of therecovery.

We do, however, find that, independent of whether a recession isassociated with a banking or financial crisis, the depth andduration of the recession do have some predictive power for thepace of recoveries. Deeper recessions are associated with slightlystronger growth during the first three years of recovery.Recessions of greater duration are linked to slower post-troughperformance. Also, recessions with large house price declines--acommon but not omnipresent feature of long recessions--tend torecover slower than other recessions.

Because banking and financial crises are often both deep andlong, these effects on the pace of recovery balance out, leadingpost-trough growth to be about average and implying that outputdeclines during such severe recessions are not made up quickly. Weconfirm and extend earlier work showing that severe recessions areassociated with sustained negative gaps in the level of output frompre-crisis trend and show that these gaps are attributable toreductions in the utilization of labor - particularly throughemployment and labor force participation rates.

Until recently in the United States, GDP growth was about onpace with the average recovery in the advanced economies. However,recently the path of output has veered below the average recoveryand is well below what would be predicted given the depth andduration of the Great Recession. However, once the impact of thesevere decline in housing prices is accounted for, the recoverybecomes less surprising. In addition, the composition of therecovery has been unusual.2 Exports and non-residential investmenthave outperformed the median recovery so far, but consumption,housing, and employment have languished. Looking more closely atthese components, we find surprising strength in consumption ofgoods, in particular large durable goods such as cars and householdfurniture which one might think would be particularly restrained inthis recovery. On the other hand, services consumption in almostevery category is weaker than ever before in a post-war U.S.recovery. Likewise, even compared with other "jobless"recoveries, the weakness in employment is omnipresent andextreme.

Following this introduction, section II of the paper describesthe dataset and recession classification system used. Section IIIpresents our results, provides robustness checks, and contrasts ourwork with previous findings. Section IV focuses on characterizingand comparing the current U.S. recovery with past U.S. experience.Section V concludes.

# II.  Data and Methodology

For our cross-country comparisons, our database contains anunbalanced panel of quarterly GDP data for 59 countries - 26advanced economies (AEs) and 33 emerging market economies (EMEs) -from 1970 (or whenever we begin to have quarterly GDP data) topresent. Most data are from national sources, and a full list ofcountries can be found in appendix A. For comparability acrosscountries, recessions are classified as two consecutive quarters ofnegative GDP growth. If a single quarter of positive growth occurssurrounded by a recession on either side, it is included in therecession. The pre-recession peak is defined as the last quarterbefore the beginning of a recession while the recession trough isthe last quarter of the recession. As will be discussed further, wecheck the robustness of our results using a variety of otherrecession-dating methodologies found in the literature includingthe Bry-Boschen procedure for quarterly data (henceforth called theBBQ method) as described by Harding and Pagan (2002).3

Using our definition of recession, our sample contains 271recessions; 137 occurring in the advanced economies and 134 in theemerging market economies (table 1). If the Great Recession isexcluded, the sample of recessions is reduced to 224 episodes (116AE and 108 EME). The greater number of AE recessions reflects thefact that quarterly GDP data are available for those countriesearlier than for most of the EMEs. (See appendix B for data rangefor each country in our sample.)

In our analysis, we divide our sample by the type of economy -emerging market or advanced - and by type of recession. Forcomparability with earlier work, we match up the list of bankingand financial crises found in IMF work by Laeven and Valencia(2008) with the list of recessions from the above procedure toidentify if the downturn coincides with a currency, banking, ordebt crisis.4 Laeven and Valencia identify crises inthe year of occurrence. For each recession, if a crisis occurred ina year during which the recession began or was ongoing, or if therecession began in the first or second quarter of a yearimmediately following a crisis, it was classified as being relatedto that crisis. Using this method, we identify 8 recessions in theadvanced economies and 39 recessions in the emerging economiesas being related to a crisis.

We also classify housing price slumps for a smaller sample ofOECD countries for which we have a long time series of quarterlydata on house prices. For these countries, we identify cycles inreal house prices. Because the housing market is highly cyclical,most recessions are associated with periods of real house pricedecline. We identify periods of severe housing market stress asthose associated with declines in real house prices above themedian. We identify 35 recessions associated with severe housingslumps in the advanced economies. A list of countries, recessiondates, and recession types is found in appendix A.

As with other work in this area, much of our analysis will be inthe form of butterfly charts, allowing us to compare the behaviorof output around cyclical downturns across numerous recessions andcountries. In our case, however, instead of indexing the outputseries for each recession to be 100 at the pre-recession peak, weindex the level of GDP to 100 at the date of the recession trough.This allows us to isolate the trajectory of the recovery, which isthe key focus of our paper. We typically look at the 12 quartersbefore and after the trough. Because we have observations on somany recessions, it is not informative to chart individualrecessions for most of our analysis. To summarize the cross-countryexperience, we calculate the mean value of output at each quarteracross recession observations to construct the average path of GDPbefore and after the trough. Our results are not qualitativelydifferent if medians are constructed. Using means allows us tocreate standard error bands around our average output paths.

# III.  Results

## A.  Banking and Financial Crises

As a first look, we construct the average path of GDP aroundrecession troughs for our entire sample, excluding the GreatRecession (figure 1). On average in a recession in our sample,output falls 41⁄2 percent from the pre-recession peak to thetrough.5 GDP then rises at an average annualpace of 33⁄4 percent for the next three years, putting thelevel of output roughly 12 percent higher than at the trough.Splitting the sample between advanced economies and emerging marketeconomies (figure 2), shows, not surprisingly, that the EMEs havemore extreme cycles, both in terms of the severity of recessionsand the rapidity of recoveries. For the average EME recession,output falls 61⁄2 percent from peak to trough, compared to21⁄2 percent for the AEs. And the average annual pace of EMErecovery is 5 percent over the three years following the trough,almost 2 percentage points faster than that in the AEs, leaving thelevel of output in the EMEs about 6 percentage points higher thanthat in the advanced economies.

As mentioned earlier, we have classified recessions by type,depending on whether they were associated with banking andfinancial crises. Over our sample, excluding the current recession,8 advanced economies have experienced B&F crises out of asample of 116 - or roughly 61⁄2 percent of all AErecessions.6 The frequency of banking and financialcrises is a much higher 36 percent (or 39 out of 108) for theemerging market economies. Because of this, and the more pronouncedbehavior of output around EME recessions, we separate our sampleinto advanced and emerging market economies throughout the paper socountry composition does not distort our conclusions.

As seen in figures 3 and 4, the pace of output growth uponexiting a recession, shown in the region to the right of therecession trough, is remarkably similar for both the advanced andemerging economies. Recoveries from banking and financial crisesappear identical in pace to recoveries from other types ofrecessions. Table 2 presents the results of regressions of thelevel of GDP one, two, and three years after the trough on aconstant and a dummy for whether the crisis was associated with abanking and financial crisis. For both the advanced economies andthe emerging markets, the coefficient on banking and financialcrises comes in highly insignificant. There appears to be littleevidence that the pace of output differs in recovery depending onwhether the recession is related to a banking and financialcrisis.

This result is surprising given the stylized fact and thestandard interpretation of the previous empirical work (Reinhartand Reinhart, 2010; Reinhart and Rogoff, 2009; Claessens et al.,2008 and Terrones et al, IMF WEO, 2009) that finds that recoveriesfrom banking crises are slow.7 A key reason for the divergence inresults is that earlier analysis has indexed the level of GDP tothe pre-recession peak, rather than the trough. As can be seen infigures 3 and 4, there are significant differences in the severityof recessions associated with B&F crises. The red lines in theregion to the left of the trough are all higher and fall moresharply. Indeed, running similar regressions on the level of GDPone, two, and three years *prior* to the trough show that thecoefficient on banking and financial crises is large andsignificantly positive in most cases - indicating a sharper declineduring the recession for B&F crises (table 3). Indexing to thepeak confounds the strength of the recession and the behavior ofthe recovery, as can be seen when we re-index our data to thepre-recession peak (figures 5 and 6). Our results are consistentwith findings that banking and financial crises are associated withgreater declines in output and slower returns to pre-crises levelsor trends, but this is because the recessions were deeper ratherthan because of disparities in the pace of recovery.

To confirm that indexing is central to our differences with theprevious literature, we also ran robustness tests using thealternative methods of dating recessions and country samples forthe AEs used in earlier work. Figures 7 and 8, display the outputpaths around the trough for the various samples of AE countriesexperiencing B&F crises found in Reinhart and Rogoff orTerrones et al. for both the two-quarter and the BBQ method ofdating recessions. For the Reinhart and Rogoff recessions(excluding the Great Depression), the average path of GDP after arecession for B&F crises follows closely or is even strongerthan our own, while the Terrones sample is just a touch weaker. Toa first order, differences in recession classification and countrysampling do not appear to alter our results. Figures 9 and 10present similar results for the emerging economies, though only forReinhart and Rogoff, as Terrones et al. does not cover emergingeconomies.8

## B.  Housing Slowdowns

Given the collapse in housing markets in a number of countriesduring the recent recession, we also looked at historicalexperiences with recoveries associated with severe slumps inhousing markets. Our analysis is limited to the 18 advancedeconomies for which we could obtain reasonable historical data onhousing markets and we define housing slumps simply in terms ofchanges in real house prices using quarterly OECD data starting in1970.

The quarterly house price data are volatile, so to define ahousing price slump we smooth each country's data using an HPfilter with the low parameter of 100 and then look for local maximaand minima in the smoothed series. Returning to the unsmoothed datawith the dates of the local peaks and troughs, we calculate theduration and depth of house price declines across the sample. Ourmethodology identifies 57 periods of house price declines, coveringa significant portion of countries and time periods (occasionallyacross multiple recessions). For the United States (figure 11),this process identified four periods of real house price decline:the mid-1970s, the early 1980s, a brief period around 1990, and themost recent downturn. To classify a severe housing slump, we pickonly the more sizable declines, those above the median. (For theUnited States, only the current housing slump would be classifiedas severe.) In these cases, the decline in real house prices isgreater than 19 percent. They last for an average of61⁄2 years and fall an average of 33 percent.

Our paper focuses on the cyclicality of GDP, not real houseprices, so our final step is matching housing slumps to recessions.We do this simply: if any quarter of the recession overlaps withany quarter of the housing slump, we classify the recession asassociated with a severe housing slump. There are 35 suchrecessions.

Dividing the OECD sample into recessions associated with severehousing slumps and those without reveals some interesting patterns.In particular, as shown in figure 12, housing-slump recessions tendto be longer and deeper and recoveries from these recessions aresignificantly slower. Table 4 runs a simple regression showingsimilar results.

## C.  Depth and Duration

Our result that the pace of growth after the trough ofrecessions associated with financial crises are similar to otherrecessions is somewhat surprising and leads to questions about whatwe know about recoveries following severe recessions moregenerally. In particular, how accurate is the second stylized factthat deep recessions are associated with faster bouncebacks? Toaddress the questions, we characterize all recessions in terms oftheir depth - the decline in the level of GDP from peak to trough -and duration - the number of quarters from peak to trough. Figures13 and 14 present histograms of the depth of the recessions in oursample for the advanced and emerging market economies, along withselected summary statistics, excluding the Great Recession. Asmentioned above, the average decline in output for the AEs is 2.6percent, with 12 percent of recessions associated with declines ofmore than 5 percent. The right tail is even more elongated forthe EMEs, with the average decline being 6.4 percent, but 17percent of the sample seeing output loss of 10 percent or greater.Figures 15 and 16 present the same analysis for recession duration.Not surprisingly, for both sets of countries, there is a mass ofrecessions lasting 2 quarters (the duration of output declinethat defines a recession in our work). For the advanced economies,the average recession length is about 3 quarters with almost30 percent of the sample experiencing output declines for ayear or more. For the EMEs, the duration is more extreme. Theaverage EME recession lasts a year, and 45 percent of recessionslast more than a year with one, that for post-Soviet Russia, ofalmost 6 years.

In Figures 17 through 20, we construct butterfly charts aroundthe trough for recessions that are above the top 25th percentile indepth and duration and below the bottom 25th percentile for theAFEs and EMEs. In terms of recession depth, the charts certainlysuggest that deeper recessions are associated with sharperbouncebacks than shallower recessions for both types of countries.The average level of output is 5 percent higher three years after adeep recession in the AEs and the EMEs. The results are differentfor long recessions. Here the average recovery appears slightlyweaker following long recessions in the advanced economies,especially in the first few years. For the EMEs, there appearslittle difference between recoveries following long recessions thanthose following short recessions.

To provide a bit more rigorous look at this, table 5 presentsthe results of regressions of the level of GDP in the advancedeconomies one, two, and three years following a recession trough onthe depth and duration of the recession, a dummy for whether therecession is associated with a banking or financial crisis, and aconstant. Unlike with banking and financial crises, both depth andduration significantly affect the path of recovery, particularly inthe first year. For example, for every 1 percentage point increasein recession depth, the level of output one year after the troughis a little over 1⁄2 percentage point greater. In contrast, arecession that is 1 quarter longer is associated with asimilar-sized reduction in the pace of recovery. Over time, thedrag from a longer recession appears to dissipate while the levelof output is still roughly 1⁄2 percentage point higherfollowing deep recessions. The results are even stronger forregressions on EME recessions (table 6). For these economies, aquarter longer recession is associated with a 1 percentage pointlower level in output a year after the trough and11⁄2 percentage point lower level in output three yearslater. In contrast, a 1 percentage point greater decline inthe level of output during the recession is associated with a1⁄2 percentage point higher level of output rising to 3⁄4percentage point greater level by year three of the recovery. Inall three versions, the coefficients on length and depth come instatistically significantly and with opposite signs.

In the previous literature, financial and banking crises havebeen linked to severe recessions - implying both deeper and longerdownturns - which may explain why we are failing to getstatistically significant effects of banking and financial crises -these impacts may be cancelling each other out. To check this, wetake a closer look at the relationship between banking andfinancial crises and severity of recessions. Figures 21 and 22present scatterplots of the depth and duration of recessions, againdividing countries by whether they are considered advanced oremerging market economies. Individual banking and financial crisesare represented by the yellow dots and all other recessions arecaptured by the black dots. The vertical and horizontal linesrepresent the average duration and depth of recessions,respectively--yellow lines capturing the averages for banking andfinancial crises and black lines the average duration and depth forall other recessions. What was somewhat surprising to us is thatbanking and financial crises are not universally longer and deeper.Judging by the distance between the yellow and black lines, for theAEs, B&F crises tend to be longer but not much deeper than allother types of recessions. The reverse is true for the EMEs. Forthese economies, B&F recessions are associated with deeper butnot much longer recessions. Table 7 details the summary statisticsbehind these charts. Prior to the Great Recession, the correlationbetween length and depth was .36 for the AEs and a much stronger.67 for EMEs.

## D.  Implications

What do our results imply should be the pace of the currentrecovery? To show this, we use the coefficients from our threeregressions above to predict the pace of recovery at 4, 8, and 12quarters past the trough based on observed depth and duration inthe current recession9. Figures 23 through 24 illustrate theresults of this exercise. The solid black line represents the paceof recovery predicted for all AEs and EMEs, respectively, given theaverage depth and duration of the Great Recession and the red linerepresents the path of actual average AE or EME GDP in the currentrecovery. The pace of recovery in the AEs appears to beunderperforming while that in the EMEs seems right on track.

Turning to the United States, figure 25 compares the currentU.S. recovery to past recoveries in the advanced economies.Although the U.S. Great Recession was longer and deeper than almostall previous U.S. and advanced economy recessions and wasaccompanied by extreme financial disruptions, the U.S. recoveryaligned well with average AE recoveries until the first half of2011 when the pace of recovery slowed sharply. However, figure 26shows that the actual path of recovery is well below what would bepredicted by our simple model of depth and duration, suggestingother factors, possibly related to the financial crisis, may be atplay this time around.10 One could ask if generalization fromoverall AE experience to the U.S. economy is appropriate given itsrelatively high average growth rate and greater flexibility. Insimple tests, however, we were unable to find compelling evidencethat U.S. recoveries are typically faster than AE recoveries ingeneral (tables 8 and 9).

## E.  Permanent Versus Transitory, or Does the Economy EverActually "Recover"

Despite the differences in recovery rates we have highlightedabove for recessions that are long or deep, recovery rates acrossrecessions are still quite similar. This implies that long and deeprecessions are associated with large and sustained losses tooutput. In particular, the economy will not return to its long-termtrend, implying a persistent gap between the pre-crisis trend andthe post-crisis level of output. This result is consistent withCerra and Saxena (2008) which finds that large output lossesassociated with financial crises are highly persistent.

Our work also suggests that large declines in output over longperiods of time can have more permanent effects on the level ofoutput. For example, using the regression results for the advancedeconomies, the pace of recovery is the same after a recession of 2quarters duration that results in a 2 percent decline in output andone of twice that length and duration - suggesting a greaterpotential permanent loss in output from the more severerecession.

To press this result further, we conduct a series of exercisesto test whether output returns to pre-recession trend levels. To dothis, we face both a conceptual and a practical challenge. Often,macroeconomic data are detrended using HP or Kalman filters. Bothof these techniques are two-sided moving average filters. Thisimplies that the view of the past changes as the data evolves. Inparticular, and of great importance here, these detrending toolscannot accommodate a permanent deviation from trend. For thisreason, we choose to use a simple exponential trend which canaccommodate such long-lasting deviations. Even with thismethodology, determining the appropriate pre-recession trend issomewhat tricky, to the extent that banking and financial crisesare associated with bubbles or positive deviations from trend priorto the crisis. To avoid including the bubble in our trend, wecalculate the four-year average growth rate for each country, twoyears prior to the peak, thus excluding the often rapid period ofgrowth before the crisis. (The results are similar using averagegrowth calculated over different pre-peak intervals.)

Having calculated a pre-recession trend, we then examine GDP asa percentage of this trend (figures 27 and 28) for the averagerecession and from particularly mild and severe recessions. AverageGDP in the advanced economies never recovers to trend, even forshort and shallow recessions. However, the average recession in theemerging economies does return to trend, and exceeds trend forshort and shallow recessions. But, as for the AE recessions, fordeep and long EME receesions, GDP does not drift back toward 100percent of the pre-crisis trend, even after 10 years. For both AEsand EMEs, deep and long recessions lead to a sustained loss frompre-recession trend of about 8 to 10 percent after 10 years. Whilevarying the specification of our regressions or the definition ofpre-crisis trend can modify these loss estimates, these exercisesall suggest a more sustained hit to output from severerecessions.

Another way of testing if GDP returns to its pre-crisis trend isto evaluate whether growth rates immediately after recessionsdiffer from long-run average growth. We have examined this, first,by constructing scatterplots for the AE and EME countries ofaverage growth over the sample for each country and average pace ofgrowth three years after a recession trough (figures 29 and 30). Ifgrowth in recoveries proceeds at about average pace, then thepoints should line up close to the 45 degree line, indicating noquick return to pre-recession trend levels. In these charts,average growth seems very close to the pace of growth duringrecoveries. We also include a variable in our depth and durationregression to capture average pre-recession growth. It is possiblethat countries with faster trend growth experience faster growthcoming out of recoveries. If these countries are also associatedwith greater propensity (or less) to experience banking andfinancial crises, then our estimates of post-trough growth may bebiased. As seen in in table 10, pre-crises growth rates come instatistically insignificant - suggesting the average pace of growthprior to the recession does not affect the post-recession recoveryrate.

Shifting back to our comparison with Cerra and Saxena, they findthat B&F crises lead to permanent losses in output. Given ourresults on depth and duration, one might ask whether their resultis purely a reflection of the depth and duration of the downturnsassociated with financial crises or is there something specialabout financial crises above and beyond the contour of the downturnwhich leads to permanently lower output? There are differences inmethodology and data between the two studies - Cerra and Saxenarestrict their analysis to the initial shock stemming from thefirst year of a banking crisis, focus solely on banking crises(treating currency and debt crises as separate), use simulationsfrom VAR analysis to estimate the impact of banking crises, andcompare banking crises to non-crisis growth performance whereas wedraw comparisons to other recessions. Despite these differences, wecan shed some light on this question.

Using the sample of non-crisis recessions, we regress the levelof post-trough GDP on the depth and duration of the crisis, similarto table 5, but with a sample restricted to non-crisis recessionsand of course without the B&F crisis explanatory variable. Thisgives us a prediction for the recovery given a recession of acertain depth and duration. We use the model to create a predictionfor a recovery after a non-B&F related recession that has thesame depth and duration of an average B&F crisis. Finally, wecompare the prediction to the average of actual outcomes of B&Fcrises. Figures 31 and 32 show that the average recovery and theprediction are almost identical. There appears to be nothinginherently special about banking and financial crises that createsmore of an output loss than similarly sized recessions unassociatedwith crises. Combining this simple experiment with our earlierresults, we conclude that any recession of similar magnitude to aB&F crisis may lead to sustained losses in the level ofoutput.

## F.  A Simple Look at What Doesn't Recover

Our work above suggests that the level of GDP, particularlyafter long and deep recessions, does not recover to its pre-crisistrend even five years after the start of a recession, thus it isimportant to understand what is driving this sustained output loss.In general, even for the advanced economies, it is a challenge toget comparable quarterly time series data across countries to allowa more granular look at post-recession behavior. One exception is adataset developed by and detailed in Ohanian and Raffo (2011) whichcontains quarterly information on total hours, labor-forceparticipation, employment, and average weekly hours for 15 OECDcountries from 1960 to the 2010.11 With these data we can examinethe broad supply-side components of output - total hours and outputper hour - to see where the weakness in overall GDP lies followinga recession. Figure 33 shows, for the smaller sample used here, theaverage behavior of the level of GDP as a percentage ofpre-recession trend - divided into those that were particularlysevere (in the top 25th percentile of depth and duration) and allothers. In both cases, the level of output fails to return to thepre-recession trend, with the gap being particularly sizable (about71⁄2 percent) for severe recessions. Figures 34 and 35 breakoutput down into total hours and output per hour for both sets ofrecessions. Interestingly, for typical recessions, the loss inoutput is a reflection of declines in both productivity and laborinput. In contrast, for severe recessions, the sustained deviationin the level of output from trend is more than entirely accountedfor by a loss in total hours - productivity actually increasesrelative to trend.

We next decompose total hours into labor-forceparticipation, the employment rate, and average weekly hours(figure 36 through 38). Interestingly, whereas the workweek returnsand even exceeds its pre-recession trend relatively quickly,employment and labor-force participation rates remain depressed -particularly after long and deep recessions. These results suggestthe decline in output relative to pre-crisis trend, especiallyafter severe recessions, is importantly concentrated in a reductionin the utilization of labor. For particularly bad recessions, thereduction in the employment and labor force participation rates issustained even five years after the pre-recession peak.

# IV.  The Current U.S. Recovery in More Detail

With the general knowledge of the features of recoveries inhand, we can now turn to characterizing the current U.S. recoveryin more detail. The butterfly chart in figure 39 shows theevolution of U.S. GDP around the trough of every recession since1947, separating the 1980s downturn into two recessionperiods.12 The thick black line denotes thecurrent recession. Only the downturn in 1980 had a more sluggishpace of recovery two years after the trough.

This anemic post-recession performance is not a reflection ofweak outcomes in the manufacturing sector. After fallingdramatically in the recent recession industrial production (figure40) has since climbed at an about-average pace and real exports(figure 41) have surged nearly 25 percent. Non-residentialinvestment (shown in figure 42) tells a similar story. The fall ininvestment was larger than in any previous recession, leaving atremendous gap between the current level and the peak, but the paceof investment growth during the recovery has been on the high endof the more recent historical experiences.

On the other hand, unusually poor recovery is evident inconsumption and housing. The level of real private consumption(figure 43) has fallen behind every recession except the 1980double dip. Residential investment remains below its level at thetrough of the recession (figure 44) and house prices haveunderperformed all previous recoveries (figure 45).

A number of factors appear to be contributing to these areas.Credit growth, even outside of mortgage lending, has fallen furthersince the recession trough (figure 46) - undoubtedly reflectingtighter lending conditions but also weak demand. Consumer sentimenthas also improved little over the past two years (figure 47) asincome growth has been particularly slow (figure 48) and employmenthas languished (figure 49). Consumption performance has shown somevariation - with goods consumption, especially for durables andmotor vehicles, picking up at about on average pace (figures 50 to52) but services consumption is markedly weaker than in previousrecoveries (figure 53). Employment growth has been weak across theboard but like consumption, relatively worse in in the servicesindustries than the goods industries (figure 54 and 55). Also ofnote is the unusual behavior of state and local employment whichwas rising at a relatively slow pace prior to the recession and hasshown declines matched only by the recession in 1980, with littlehope of improvement going forward (figure 56).

The policy response in this recovery has been mixed. Monetarypolicy, even excluding long-term asset purchases and othernon-traditional programs, has been larger than in most previousrecoveries with the real federal funds rate (figure 57) remainingin negative territory two years after the recession trough. Incontrast, government expenditures (figure 58), which had risensharply during the recession, has leveled off noticeably since thenespecially compared with earlier recoveries. Further, althoughrevenue fell more than in other recessions, the revenue growthfollowing the recession is on the high end of previous recoveries(figure 59).

Finally, we apply similar supply-side analysis to the UnitedStates as above to the OECD countries.13 Re-indexing to the peakand taking deviations from a simple exponential pre-recessiontrend, shows that 21⁄2 years after the recession trough thelevel of output in the United States is strikingly below trend(figure 60). This gap is driven entirely by a lack of hours (figure61), as labor productivity has returned to trend (figure 62). Aswith the OECD results more generally, this hours gap reflects adownshift in labor force participation and employment rather thanthe workweek (figure 63 to 65).

# V.  Conclusion

We take away several key points from our work on recoveries.First, whether a recession is associated with a banking orfinancial crisis does not have a statistically significant effecton the pace of growth following recession troughs. This resultsurprised us and raises questions for future research about theexact channels through which banking and financial crises affectgrowth. In comparison, as might be expected, recoveries fromrecessions associated with severe housing downturns are found to beslower.

Second, the depth and duration of a recession does matter forrecovery speed. Deeper recessions are associated with fasterpost-trough recoveries, in line with the view that pent-up demandand underutilized resources can contribute to a sharp snapback. Incontrast, longer recessions are associated with slower post-troughgrowth, possibly reflecting skill and capital deterioration asrecessions drag on. Banking and financial crises are associatedwith more severe recessions - deeper in the case of emerging marketeconomies and longer in the case of the advanced economies - but donot appear to impose additional restraint to recoveries beyond thedepth and duration. Currently, the emerging market economies arerecovering as would be predicted given the depth and duration oftheir Great Recession experiences, but the advanced economies,including the United States, are lagging.

Third, we expand on earlier work in the literature that findsevidence that recessions, especially severe recessions, areassociated with persistent negative deviations in the level of GDPfrom pre-crisis trend. This deviation appears to importantlyreflect the lower utilization of labor, particularly a decline inemployment and labor force participation rates from earlier trendlevels. Going forward, it will be important to examine theseresults in line with what we know from the micro labor literatureabout skill deterioration, hysteresis, and long-term unemployment.Finally, we may need to reexamine the assumptions in many of ourmacro models that output levels eventually return to trend orreevaluate the concept of trend.

For the United States, the current recovery has been weaker thanwould have predicted based on the depth and duration of therecession alone. Without question, the labor market has performedparticularly weakly - with especially tepid employment growth and asharp decline in labor force participation. These developmentsraise questions about the financial and fiscal channels that affectlabor demand and about the role of policy in the face of long anddeep recessions.

# References

Cerra, Valerie and Sweta Chaman Saxena, "Growth Dynamics: TheMyth of Economic Recovery," American Economic Review, 2008, 98:1,p. 439-457.

Claessens, Stijn, M. Ayhan Kose, and Marco E. Terrones, "WhatHappens During Recessions, Crunches, and Busts?" IMF WorkingPaper, WP/08/274, December 2008.

Harding, Don and Adrian Pagan, "Dissecting the Cycle: amethodological investigation," Journal of Monetary Economics,2002, vol 49, p 365-381.

Laeven, Luc and Fabian Valencia "Systemic Banking Crises: A NewDatabase," IMF Working Paper, 08/224, November 2008.

Lopez-Salido, David and Edward Nelson, "Postwar FinancialCrises and Economic Recoveries in the United States," mimeo,2010.

Ohanian, Lee E and Andrea Raffo, "Hours Worked over theBusiness Cycles: Evidence from OECD Countries, 1960-2010," mimeo,2011.

Romer, Christina and David Romer, "What Ends Recessions?" NBERMacroeconomics Annual, 1994, vol. 9, p13-80.

Reinhart, Carmen M. and Vincent R. Reinhart, "After the Fall"NBER Working Paper Series, Nuxmber 16334, September 2010.

Reinhart, Carmen M. and Kennth S. Rogoff, "The Aftermath ofFinancial Crises," NBER Working Paper Series, Number 14656,January 2009.

Terrones, Marco E., Alasdair Scott, Prakash Kannan, "FromRecession to Recovery: How soon and how strong?" InternationalMonetary Fund World Economic Outlook, April 2009, Chapter 3.

Table 1
|   | Total | Advanced       Economies | Emerging Market       Economies |
|--------|-------|--------------------------|---------------------------------|
| 271    | 137   | 134                      |
| 224    | 118   | 104                      |
| 47     | 8     | 39                       |
| --     | 35    | --                       |

Table 2
|   | One year after: Coefficient | One year after: Std Error | Two years after: Coefficient | Two years after: Std Error | Three years after: Coefficient | Three years after: Std Error |
|--------|-----------------------------|---------------------------|------------------------------|----------------------------|--------------------------------|------------------------------|
| -1.05  | 1.23                        | -0.28                     | 1.57                         | 1.30                       | 1.78                           |
| 103.99 |                        | 106.48                    |                         | 108.75                     |                           |
| 0.00   |                        | -0.01                     |                         | 0.00                       |                           |
| 0.17   | 1.09                        | 0.20                      | 1.85                         | 1.25                       | 2.58                           |
| 106.78 |                        | 110.90                    |                         | 114.51                     |                           |
| -0.01  |                        | -0.01                     |                         | -0.01                      |                           |

Table 2 is based on a simple linear regression of the form
where x is one, two, or three years, and  is a dummy variable for whether the recessionwas associated with a banking or financial crisis.
A * indicates confidence at the 95 percent level, and a **indicates confidence at a 99 percent level.

Table 3
 One year prior: CoefficientOne year prior: Std ErrorTwo years prior: CoefficientTwo years prior: Std ErrorThree years prior: CoefficientThree years prior: Std ErrorAdvanced Economies: B&F0.841.113.20 *1.303.98 *1.67Advanced Economies: Constant101.28 98.76 95.67 Advanced Economies: R-squared0.00 0.04 0.04 Emerging Economies: B&F4.96 **1.258.30 **1.947.84 **2/72Emerging Economies: Constant102.96 98.67 96.05 Emerging Economies: R-squared0.08 0.11 0.05 
Table 3 is based on a simple linear regression of the form
Table 4
 One year after: CoefficientOne year after: Std ErrorTwo years after: CoefficientTwo years after: Std ErrorThree years after: CoefficientThree years after: Std ErrorAdvanced Economies: Housing-1.57 *0.71-1.98 *0.83-1.320.95Advanced Economies: Constant104.52 107.15 109.20 Advanced Economies: R-squared0.04 0.05 0.01 
Table 4 is based on a simple linear regression of the form
where  is a dummy variable for whether therecession was associated with a housing slump.

Table 5
 One year     after: CoefficientOne year     after: Std ErrorTwo years     after: CoefficientTwo years     after: Std ErrorThree years     after: CoefficientThree years     after: Std ErrorAdvanced Economies: Depth0.64 **0.110.61 **0.150.42 **0.18Advanced Economies: Duration-0.62 **0.20-0.520.27-0.190.32Advanced Economies: B&F-0.401.170.181.581.271.87Advanced Economies: Constant104.20 106.45 108.23 Advanced Economies: R-squared0.20 0.10 0.02 
Tables 5 and 6 are based on a simple linear regression of theform
where Depth is a positive number measuring the fall in GDP duringthe recession as a percentage of peak GDP and Duration is thenumber of quarter from peak to trough.

Table 6
 One year     after: CoefficientOne year     after: Std ErrorTwo years     after: CoefficientTwo years     after: Std ErrorThree years     after: CoefficientThree years     after: Std ErrorEmerging Economies: Depth0.57 **0.090.62 ** 0.170.85 **0.24Emerging Economies: Duration-1.07 **0.21-1.30 **0.39-1.61 **0.55Emerging Economies: B&F-1.590.98-1.601.85-1.342.61Emerging Economies: Constant107.95 112.68 116.31 Emerging Economies: R-squared0.19 0.11 0.07 
 Table 7a
 Depth: Mean (p=.26)Depth: Std Dev (p=.26)Duration: Mean (p=.00)Duration: Std Dev (p=.00)Advanced Economies: B&F3.664.075.132.75Advanced Economies: Others2.582.492.971.36
 Table 7b
 Depth: Mean (p=.00)Depth: Std Dev (p=.00)Duration: Mean (p=.20)Duration: Std Dev (p=.20)Emerging Economies: B&F9.417.314.472.71Emerging Economies: Others4.925.943.712.80
Table 8
 One year       after: CoefficientOne year       after:Std ErrorTwo       years after: CoefficientTwo       years after:Std ErrorThree       years after: CoefficientThree       years after: Std ErrorAdvanced Economies: U.S. Dummy-0.241.720.372.182.802.46Advanced Economies: Constant103.93 106.45 108.74 Advanced Economies: R-squared-0.01 -0.01 0.00 
Table 8 is based on a simple linear regression of the form
where is a dummy variable for whether the recession occurred in the United States.

Table 9
 One year     after: CoefficientOne year     after: Std ErrorTwo     years after: CoefficientTwo     years after: Std ErrorThree     years after: CoefficientThree     years after: Std ErrorAdvanced Economies: Depth0.64 **0.110.61 **0.150.42 **0.18Advanced Economies: Duration-0.65 **0.19-0.51 *0.26-0.110.30Advanced Economies: U.S. Dummy-0.321.520.342.062.872.42Advanced Economies: Constant104.25 106.41 107.95 Advanced Economies: R-squared0.20 0.10 0.03 
Table 9 is based on a simple linear regression of the form
Table 10a
 One year     later: CoefficientOne year     later: Std ErrorTwo     years later: CoefficientTwo     years later: Std ErrorThree     years later: CoefficientThree     years later: Std ErrorAdvanced Economies:Depth0.50 **0.130.45 *0.200.270.24Advanced Economies:Duration-0.49 **0.19-0.410.28-0.110.34Advanced Economies:Pre-crisis Growth-0.050.130.180.190.270.24Advanced Economies:B&F0.041.020.551.511.701.85Advanced Economies:Constant103.77 105.46 106.95 
Table 10b
 One year     later: CoefficientOne year     later: Std ErrorTwo     years later:CoefficientTwo     years later:Std ErrorThree     years later: CoefficientThree     years later: Std ErrorEmerging Economies: Emerging Economies: Depth0.56 **0.090.64 **0.170.83 **0.26Emerging Economies: Duration-1.11 **0.21-1.36 **0.39-1.71  **0.58Emerging Economies: Pre-crisis Growth0.060.120.360.230.520.34Emerging Economies: B&F-0.151.011.781.912.56 Emerging Economies: Constant106.96 110.00 112.77 
Tables 5 and 6 are based on a simple linear regression of theform
where Trend is the 4 year average annual growth in the two years  prior to the peak.

Figure 1. Recoveries in the entire sample

*Solid lines is the mean, with dashed lines plus or minus one standard error.

Figure 2. Recoveries 

*Solid lines is the mean, with dashed lines plus or minus one standard error.

Figure 3. Recoveries in the Advanced Economies

*Solid lines is the mean, with dashed lines plus or minus one standard error.

Figure 4. Recoveries in the Emerging Economies

*Solid lines is the mean, with dashed lines plus or minus one standard error.

Figure 5. Recessions in the AEs, indexed to peak

*Solid lines is the mean, with dashed lines plus or minus one standard error.

Figure 6. Recessions in the EMEs, indexed to peak

*Solid lines is the mean, with dashed lines plus or minus one standard error.

Figure 7. Two-quarter method of dating AE recessions

A country is in a recession during two consecutive quarters of decline or one period of growth surrounded by periods of recession.

Figure 8. BBQ Method of dating AE recessions

A country is in a recession as identified by the procedure outlined in Harding and Pagan (2001)

Figure 9. Two-quarter method of dating EME recessions

A country is in a recession during two consecutive quarters of decline or one period of growth surrounded by periods of recession.

Figure 10. BBQ Method of dating, EME recessions

A country is in a recession as identified by the procedure outlined in Harding and Pagan (2001)

Figure 11. U.S. House Prices

Note: Dots indicate turning points

Figure 12. GDP in Select Advance Economies

Recessions in severe housing slumps overlap with a period of house price declines over 19 percent.

Figure 13. Recessions in the Advanced Economies

Figure 14. Recessions in the Emerging Economies

Figure 15. Recessions in the Advanced Economies

Figure 16. Recessions in the Emerging Economies

Figure 17. Recoveries in the Advanced Economies

*Solid lines are means, with dashed lines plus or minus one standard error

Extreme recessions are in the top 25% or bottom 25% of observed recessions.

Figure 18. Recoveries in the Emerging Economies

*Solid lines are means, with dashed lines plus or minus one standard error

Extreme recessions are in the top 25% or bottom 25% of observed recessions.

Figure 19. Recoveries in the Advanced Economies

*Solid lines are means, with dashed lines plus or minus one standard error

Very long recessions last as long or longer than those in the 75th percentiles. 

Short recessions lasted two quarters.

Figure 20. Recoveries in the Emerging Economies

*Solid lines are means, with dashed lines plus or minus one standard error

Very long recessions last as long or longer than those in the 75th percentiles.  

Short recessions lasted two quarters.

Figure 21. Recessions in the Advanced Economies

Figure 22. Recessions in the Emerging Economies

There is one additional black point at (39,23)

Figure 23. The Current AE recovery

*Regression predicts indexed GDP levels at 4, 8, and 12 quarterspast the trough, based on the observed depth and duration of the recession.

Figure 24. The Current EME Recovery

*Regression predicts indexed GDP levels at 4, 8, and 12 quarterspast the trough, based on the observed depth and duration of the recession.

Figure 25. Recoveries in the Advanced Economies

Figure 26. The Current U.S. recovery

*Regression predicts indexed GDP levels at 4, 8, and 12 quarterspast the trough, based on the observed depth and duration of the recession.

Figure 27. Recoveries in the Advanced Economies

Trend calculated as exponential function growing at the four-year average two years prior to the peak

* Deep and long recessions are in the top 25th percent of recessions as measured by both depth and duration. Similarly, shallow and short recessions are in the bottom 25th percentile of each category.

Figure 28. Recoveries in the Emerging Economies

Trend calculated as exponential function growing at the four-year average two years prior to the peak

* Deep and long recessions are in the top 25th percent of recessions as measured by both depth and duration. Similarly, shallow and short recessions are in the bottom 25th percentile of each category.

Figure 29. Growth Rates in the Advanced Economies

Average speed during a recovery is measured as GDP growth in the three years after a trough.

Each data point represents one country.

Figure 30. Growth Rates in the Emerging Economies

Average speed during a recovery is measured as GDP growth in the three years after a trough.

Each data point represents one country.

Figure 31. B&F crises in the Advanced Economies

*Values from regressions estimating GDP at 4, 8, and 12 quarters past the trough. Regressions are depth and length of recession.

The sample covers recession in advanced economies since 1970.

Figure 32. B&F crises in the Emerging Economies

*Values from regressions estimating GDP at 4, 8, and 12 quarters past the trough. Regressions are depth and length of recession.

The sample covers recession in advanced economies since 1970.

Figure 33. GDP in Select Advanced Economies

*Solid lines are means, with dashed lines plus or minus one standard error. Trend is exponential function growing at the 4-year average 2 years prior to the peak. Deep and long recessions are in the top 25th percent of recessions measured by depth and duration.

Figure 34. Total Hours in Select Advanced Economies

*Solid lines are means, with dashed lines plus or minus one standard error. Trend is exponential function growing at the 4-year average 2 years prior to the peak. Deep and long recessions are in the top 25th percent of recessions measured by depth and duration. 

Data are from Raffo and Ohanian (2010)

Figure 35. Output per Hour in Select AEs

*Solid lines are means, with dashed lines plus or minus one standard error. Trend is exponential function growing at the 4-year average 2 years prior to the peak. Deep and long recessions are in the top 25th percent of recessions measured by depth and duration. 

Data are from Raffo and Ohanian (2010)

Figure 36. Labor Force Participation in Select AEs

*Solid lines are means, with dashed lines plus or minus one standard error. Trend is exponential function growing at the 4-year average 2 years prior to the peak. Deep and long recessions are in the top 25th percent of recessions measured by depth and duration.

 Data are from Raffo and Ohanian (2010)

Figure 37. Employment Rate in Select AEs

*Solid lines are means, with dashed lines plus or minus one standard error. Trend is exponential function growing at the 4-year average 2 years prior to the peak. Deep and long recessions are in the top 25th percent of recessions measured by depth and duration. 

Data are from Raffo and Ohanian (2010)

Figure 38. Average Weekly Hours in Select AEs

*Solid lines are means, with dashed lines plus or minus one standard error. Trend is exponential function growing at the 4-year average 2 years prior to the peak. Deep and long recessions are in the top 25th percent of recessions measured by depth and duration. 

Data are from Raffo and Ohanian (2010)

Figure 39. GDP During U.S. Recessions

Note: since 1947.

Figure 40. Industrial Production

*See Figure 39 for colors of other recessions.

Figure 41. Real Exports

*See Figure 39 for colors of other recessions.

Figure 42. Non-residential Investment

*See Figure 39 for colors of other recessions.

Figure 43. Private Consumption

*See Figure 39 for colors of other recessions.

Figure 44. Residential Investment

*See Figure 39 for colors of other recessions.

Figure 45. Housing Prices

*See Figure 39 for colors of other recessions.

Figure 46. Consumer Credit

*See Figure 39 for colors of other recessions.

Figure 47. Consumer Sentiment (Michigan Index)

*See Figure 39 for colors of other recessions.

Figure 48. Personal Income

*See Figure 39 for colors of other recessions.

Figure 49. Employment

*See Figure 39 for colors of other recessions.

Figure 50. Goods Consumption

*See Figure 39 for colors of other recessions.

Figure 51. Household Durable Consumption

*See Figure 39 for colors of other recessions.

Figure 52. Motor Vehicle Consumption

*See Figure 39 for colors of other recessions.

Figure 53. Service Consumption

*See Figure 39 for colors of other recessions.

Figure 54. Goods-Producing Employment

*See Figure 39 for colors of other recessions.

Figure 55. Private Service Providing Employment

*See Figure 39 for colors of other recessions.

Figure 56. State and Local Government Employment

*See Figure 39 for colors of other recessions.

Figure 57. Real Federal Funds Rate

*See Figure 39 for colors of other recessions. 

Federal Funds rate minus 4-quarter core inflaction.

Figure 58. Government Expenditures

*See Figure 39 for colors of other recessions. 

Calculated as percent of GDP, then indexed to 100 at the trough of the recession.

Figure 59. Government Revenue

*See Figure 39 for colors of other recessions. 

Calculated as percent of GDP, then indexed to 100 at the trough of the recession.

Figure 60. Gross Domestic Product

Trend calculated as exponential function growing at the five-year average prior to the peak

Figure 61. Total Hours

*See Figure 60 for colors of other recessions.

Trend calculated as exponential function growing at the five-year average prior to the peak

Figure 62. Output per Hour

*See Figure 60 for colors of other recessions.

Trend calculated as exponential function growing at the five-year average prior to the peak

Figure 63. Labor Force Participation

*See Figure 60 for colors of other recessions.

Trend calculated as exponential function growing at the five-year average prior to the peak

Figure 64. Employment Rate

*See Figure 60 for colors of other recessions.

Trend calculated as exponential function growing at the five-year average prior to the peak

Figure 65. Average Work Week

*See Figure 60 for colors of other recessions.

Trend calculated as exponential function growing at the five-year average prior to the peak

Appendix A. Data by Episode

Duration measured in quarters, Depth as percentage of GDP. Recessions after 2007 are not categorized. CountryPeakTroughIMFHousingAE/EMEDuration DepthArgentina1974 Q41976 Q1Currency EME53.6Argentina1977 Q21978 Q3  EME54.9Argentina1980 Q31981 Q4Banking, Currency  EME59.8Argentina1984 Q41985 Q3  EME310.7Argentina1986 Q31987 Q1Currency EME22.7Argentina1988 Q11989 Q3Banking EME615.6Argentina1992 Q31993 Q1  EME23.9Argentina1994 Q41995 Q3Banking, Currency, Debt  EME35.7Argentina1998 Q22002 Q1Banking EME1520Argentina2008 Q32009 Q1  EME21.5Australia1971 Q31972 Q1  AE21.3Australia1975 Q21975 Q4  AE22.4Australia1977 Q21977 Q4  AE20.7Australia1981 Q31983 Q2  AE73.7Australia1990 Q41991 Q2  AE21.4Australia2000 Q22000 Q4  AE20.6Austria1974 Q31975 Q2  AE32Austria1981 Q21981 Q4  AE20.8Austria1982 Q21982 Q4  AE20.4Austria1983 Q41984 Q2  AE22Austria1992 Q31993 Q1  AE20.8Austria2000 Q42001 Q3  AE30.8Austria2008 Q22009 Q2  AE44.8Belgium1974 Q21975 Q2  AE42.8Belgium1976 Q31977 Q2  AE30.8Belgium1979 Q41980 Q4 HousingAE42Belgium1982 Q31983 Q1 HousingAE20.7Belgium1992 Q31993 Q1  AE21.9Belgium2001 Q22001 Q4  AE20.5Belgium2008 Q22009 Q2  AE44.1Brazil1980 Q41981 Q4  EME47.8Brazil1982 Q31983 Q1Currency, Debt  EME25.5Brazil1987 Q11987 Q3Currency EME23.1Brazil1988 Q11988 Q4  EME33.5Brazil1989 Q41991 Q1Banking EME58.9Brazil1991 Q31992 Q3Currency EME44.7Brazil1995 Q11995 Q3Banking EME22.9Brazil1998 Q21999 Q1Currency EME31.6Brazil2001 Q12001 Q4  EME31.2Brazil2008 Q32009 Q1  EME25.6Canada1981 Q21982 Q4 HousingAE64.4Canada1990 Q11991 Q1 HousingAE43.3Canada2008 Q32009 Q2  AE33.6Chile1971 Q41973 Q2Currency EME68.6Chile1974 Q21975 Q4  EME616.8Chile1981 Q21982 Q4Banking, Currency EME619.2Chile1990 Q11990 Q3  EME21.2Chile1998 Q21999 Q1  EME34.1Chile2008 Q22009 Q2  EME44.3China1971 Q21971 Q4  EME20.2China1973 Q31974 Q2  EME31.4China1975 Q31976 Q3  EME44.7Colombia1982 Q21982 Q4Banking EME21.2Colombia1998 Q11999 Q2Banking EME56.7Costa Rica1995 Q31996 Q1  EME22.7Costa Rica2008 Q12009 Q1  EME43.6Czech Republic1996 Q41997 Q3Banking EME32.4Czech Republic2008 Q22009 Q2  EME44.8Denmark1973 Q31975 Q2  AE74.2Denmark1976 Q41977 Q2  AE20.3Denmark1979 Q41981 Q2 HousingAE63.3Denmark1986 Q31987 Q2 HousingAE30.6Denmark1992 Q31993 Q2 HousingAE31.9Denmark1997 Q21997 Q4  AE21Denmark2000 Q42002 Q4  AE8-0.1Denmark2008 Q22009 Q3  AE57.3Estonia1998 Q31999 Q2  EME32.4Estonia2007 Q42009 Q3  EME720.2Finland1971 Q21971 Q4  AE20.3Finland1975 Q11975 Q4 HousingAE32.2Finland1980 Q31981 Q1  AE22.7Finland1990 Q11992 Q3BankingHousingAE1012.8Finland2008 Q12009 Q2  AE510.3France1974 Q31975 Q2  AE32.8France1980 Q11980 Q3  AE20.3France1992 Q11993 Q1  AE41.1France2008 Q12009 Q2  AE53.9Germany1974 Q31975 Q1  AE23.4Germany1981 Q31982 Q4  AE52.2Germany1985 Q31986 Q1  AE21.2Germany1992 Q31993 Q1  AE22Germany1995 Q31996 Q1 BankingAE20.7Germany2002 Q32003 Q2 BankingAE30.9Germany2004 Q12004 Q3 BankingAE20.2Germany2008 Q12009 Q1  AE46.6Greece1973 Q31974 Q3  AE412.4Greece1976 Q41977 Q2  AE23Greece1979 Q21979 Q4  AE23.1Greece1980 Q21981 Q1  AE35.6Greece1981 Q31982 Q4  AE54.6Greece1984 Q31985 Q1  AE22.3Greece1990 Q11990 Q3  AE27.1Greece1992 Q31993 Q1  AE23.6Greece2000 Q12000 Q3  AE21.1Hong Kong1973 Q41975 Q1  EME54.9Hong Kong1981 Q41982 Q2  EME22.9Hong Kong1984 Q21985 Q3  EME54.1Hong Kong1988 Q41989 Q2  EME21.3Hong Kong1995 Q11995 Q3  EME20.4Hong Kong1997 Q31998 Q4  EME58.8Hong Kong2000 Q42001 Q4  EME42Hong Kong2002 Q42003 Q2  EME22.5Hong Kong2008 Q12009 Q1  EME47.6Hungary1995 Q11995 Q4  EME31.2Hungary2008 Q12009 Q3  EME68.3Iceland1982 Q21983 Q2Currency AE43Iceland1987 Q41988 Q3  AE31.3Iceland1991 Q11992 Q3  AE64.4Iceland1997 Q31998 Q1  AE21.4Iceland2003 Q12003 Q3  AE24.3Iceland2008 Q12010 Q2  AE912India1975 Q21976 Q1  EME31.6India1978 Q11979 Q2  EME58.6India1981 Q21981 Q4  EME20.2India1983 Q41984 Q2  EME21.3Indonesia1997 Q31998 Q4  EME518.2Ireland1982 Q31983 Q2 HousingAE31Ireland1985 Q31986 Q2 HousingAE31.3Ireland2007 Q12009 Q4  AE1111.4Israel2000 Q42001 Q4  EME43.9Israel2008 Q32009 Q1  EME21.3Italy1974 Q21975 Q2  AE43.7Italy1977 Q11977 Q3  AE21.4Italy1982 Q11982 Q4CurrencyHousingAE30.9Italy1992 Q11993 Q1 HousingAE41.5Italy2001 Q12001 Q4  AE30.6Italy2002 Q42003 Q2  AE20.5Italy2004 Q32005 Q1  AE20.1Italy2008 Q12009 Q2  AE57Japan1974 Q31975 Q1 HousingAE20.3Japan1997 Q11998 Q2BankingHousingAE53.2Japan2001 Q12001 Q4 HousingAE32.1Japan2008 Q12009 Q1  AE49.9Jordan1998 Q11998 Q3  EME21.2Latvia1992 Q11993 Q4Currency EME729.9Latvia1994 Q31995 Q1  EME23.1Latvia2007 Q42009 Q4  EME825.4Lithuania2008 Q22009 Q4  EME617.3Luxembourg1974 Q21975 Q3  AE58.3Luxembourg1980 Q21981 Q2  AE40.7Luxembourg2008 Q12008 Q4  AE35.7Malaysia1974 Q31975 Q2  EME31.3Malaysia1984 Q31985 Q3  EME42Malaysia1997 Q41998 Q4Banking, Currency  EME411.1Malaysia2000 Q42001 Q2  EME21.1Malaysia2008 Q22009 Q1  EME36.5Mexico1982 Q21983 Q2banking, Currency, Debt  EME45.5Mexico1985 Q31986 Q4  EME54.6Mexico1987 Q41988 Q2  EME21.3Mexico1994 Q41995 Q2Banking, Currency  EME29.4Mexico2000 Q32002 Q1  EME62.6Mexico2008 Q12009 Q2  EME58.5Netherlands1974 Q31975 Q2  AE30.8Netherlands1980 Q11980 Q3 HousingAE22.5Netherlands2008 Q12009 Q2  AE54.6New Zealand1970 Q11970 Q3  AE24New Zealand1971 Q31972 Q1  AE26.5New Zealand1973 Q11973 Q3  AE27.8New Zealand1974 Q31975 Q2 HousingAE39.9New Zealand1977 Q21978 Q1 HousingAE313.1New Zealand1982 Q31983 Q1  AE24.6New Zealand1984 Q11984 Q3  AE23.2New Zealand1985 Q11985 Q3  AE23.1New Zealand1986 Q31987 Q1  AE27New Zealand1990 Q41991 Q2  AE23.8New Zealand1997 Q31998 Q1  AE21.4New Zealand2007 Q42009 Q1  AE52.4Norway1977 Q31978 Q1  AE25.9Norway1978 Q31979 Q2  AE31.2Norway1980 Q11980 Q3  AE22.5Norway1991 Q21991 Q4BankingHousingAE20.6Norway1992 Q31993 Q1 HousingAE21.4Norway2005 Q32006 Q1  AE20.9Norway2008 Q22009 Q2  AE42.5Peru1982 Q11983 Q4Banking, Currency  EME718.3Peru1985 Q11985 Q3  EME27Peru1987 Q31989 Q2  EME726.2Peru1990 Q11990 Q3  EME221.5Peru1992 Q11992 Q3  EME25.2Peru1997 Q41999 Q1  EME53.1Peru2000 Q12000 Q4  EME35Peru2003 Q22003 Q4  EME20.2Peru2008 Q32009 Q1  EME22.6Philippines1983 Q21985 Q3Banking, Currency, Debt  EME916.9Philippines1990 Q31991 Q1  EME21.4Philippines1997 Q41998 Q2Banking, Currency  EME22.8Poland2000 Q42001 Q2  EME20.6Portugal1974 Q11975 Q2  AE56Portugal1982 Q41984 Q2Banking, Currency  AE62.7Portugal1992 Q21993 Q3  AE52.6Portugal2001 Q42003 Q2  AE62.1Portugal2004 Q22004 Q4  AE20.2Portugal2007 Q42009 Q1  AE54Russia1989 Q21995 Q1  EME2339.1Russia1995 Q31996 Q3  EME45.4Russia2008 Q22009 Q2  EME410.9Singapore1984 Q41985 Q4  EME42Singapore1997 Q41998 Q3  EME31.3Singapore2000 Q42001 Q3  EME31.7Singapore2008 Q12008 Q4  EME32.6Slovakia1998 Q41999 Q4Banking EME46.7Slovakia2008 Q32009 Q1  EME26.4Slovenia2008 Q22009 Q3  EME59.8South Africa1974 Q31975 Q1  EME21.3South Africa1976 Q31977 Q2  EME31.3South Africa1981 Q41983 Q1  EME55.1South Africa1984 Q21985 Q3Currency, Debt  EME52.8South Africa1990 Q11992 Q4  EME114.6South Africa1998 Q11998 Q3  EME20.1South Africa2008 Q32009 Q2  EME32.6South Korea1979 Q21980 Q2  EME43.9South Korea1997 Q31998 Q2Banking, Currency  EME38.1South Korea2008 Q22008 Q4  EME24.1Spain1974 Q41975 Q2  AE20.6Spain1978 Q21979 Q1BankingHousingAE30.4Spain1980 Q31981 Q2 HousingAE30.3Spain1992 Q21993 Q2  AE41.8Spain2008 Q12009 Q4  AE74.9Sweden1973 Q11973 Q3  AE22.1Sweden1976 Q41977 Q2  AE23Sweden1982 Q21983 Q1 HousingAE30.9Sweden1990 Q41992 Q4BankingHousingAE85.6Sweden2007 Q42009 Q3  AE77.8Switzerland1974 Q21975 Q3 HousingAE510.3Switzerland1977 Q31978 Q1  AE20.6Switzerland1981 Q21982 Q2  AE41.7Switzerland1986 Q21986 Q4  AE20.2Switzerland1990 Q31991 Q2  AE31.4Switzerland1992 Q11993 Q1  AE41.5Switzerland2002 Q22003 Q1  AE30.9Switzerland2008 Q22009 Q2  AE43.2Taiwan1974 Q11974 Q3  EME22.3Taiwan2000 Q32001 Q3  EME44.4Taiwan2008 Q12009 Q1  EME49.5Thailand1996 Q31998 Q3Banking, Currency  EME814.9Thailand2008 Q22009 Q1  EME37.6Turkey1987 Q41989 Q2  EME64.3Turkey1993 Q41994 Q2  EME211.6Turkey2000 Q42001 Q2  EME27.5Turkey2008 Q12009 Q1  EME413.3United Kingdom1973 Q11974 Q1 HousingAE43.3United Kingdom1975 Q11975 Q3 HousingAE21.5United Kingdom1979 Q41981 Q1  AE54.4United Kingdom1990 Q21991 Q3 HousingAE52.5United Kingdom2008 Q12009 Q3  AE66.6United States1973 Q41975 Q1  AE53.3United States1980 Q11980 Q3  AE22.2United States1981 Q31982 Q1  AE22.8United States1990 Q31991 Q1  AE21.2United States2008 Q22009 Q2  AE45.3Uruguay1988 Q11988 Q4  EME30.1Uruguay1994 Q31995 Q1  EME22.2Uruguay1998 Q31999 Q4  EME55.7Uruguay2001 Q12002 Q4Banking, Currency, Debt  EME719.6Venezuela1979 Q21981 Q1  EME73.1Venezuela1982 Q21983 Q4Debt EME67.6Venezuela1984 Q21985 Q1Currency EME31.2Venezuela1988 Q21989 Q3Currency EME511.7Venezuela1992 Q41994 Q1Banking, Currency  EME52.8Venezuela1995 Q41996 Q2  EME22.6Venezuela2000 Q1 2000 Q3   EME21.6Venezuela2001 Q4 2003 Q1 Currency EME528.6Venezuela2008 Q4 2010 Q1   EME56.4
Appendix B. Sample Countries
CountryFirst ValueArgentina1970 Q1Australia1970 Q1Austria1970 Q1Belgium1970 Q1Brazil1970 Q1Canada1970 Q1Chile1970 Q1China1970 Q1Colombia1970 Q1Costa Rica1991 Q1Czech1996 Q1Denmark1970 Q1Estonia1995 Q1Finland1970 Q1France1970 Q1Germany1970 Q1Greece1970 Q1Hong Kong1970 Q1Hungary1995 Q1Iceland1970 Q1India1970 Q1Indonesia1970 Q1Ireland1970 Q1Israel1970 Q1Italy1970 Q1Japan1970 Q1Jordan1992 Q1Latvia1992 Q1Lithuania1995 Q1Luxembourg1970 Q1Malaysia1970 Q1Mexico1970 Q1Netherland1970 Q1New1970 Q1Norway1970 Q1Peru1980 Q1Philippine1970 Q1Poland1995 Q1Portugal1970 Q1Russia1970 Q1Singapore1970 Q1Slovakia1993 Q1Slovenia1995 Q1South Africa1970 Q1South Korea1970 Q1Spain1970 Q1Sweden1970 Q1Switzerland1970 Q1Taiwan1970 Q1Thailand1970 Q1Turkey1987 Q1United Kingdom1970 Q1United States1970 Q1Uruguay1988 Q1Venezuela1970 Q1Footnotes
1.  Notable exceptions being Romer and Romer (1994) and Cerra andSaxena (2008). Return to text

2.  The analysis of the U.S. data goes through the third quarter of2011. Return to text

3.  The BBQ method identifies cyclical peaks and troughs as localmaxima in the two quarters preceding and the two quartersfollowing. It then eliminates maxima that do not alternate betweenpeaks and troughs or do not have a long enough time span, in thiscase 2 quarters from a peak to trough and five quarters from atrough to peak. Once these criteria are met, recessions are definedas the time between a peak and a trough. We did not use this methodbecause it requires at least 5 quarters of recovery, which wouldrestrict and potentially bias our sample. Return to text

4.  This is similar to the methodology used in the IMF WEO analysis onrecessions and recoveries (Terrones et al. 2009). Return to text

5.  This decline is measured as the decline in the average GDP path inour sample. Because recessions are of different duration, theaverage decline from peak to trough across recessions is adifferent and slightly higher figure.  Return to text

6.  B&F recessions include Finland (1990), Iceland (1982), Italy(1982), Japan (1997), Norway (1991), Portugal (1982), Spain (1978),and Sweden (1990). Return to text

7.  Complementary to our results, Lopez-Salido and Nelson (2010) findthat recoveries are not systemically slower in the aftermath offinancial crises in post-war United States. Return to text

8.  Reinhart and Rogoff identify five AE recessions as banking crises.By our dating, the troughs of these recessions occur in: Finland(1992), Japan (1993), Norway (1991), Sweden (1992), and Spain(1979). Terrones et al. add Australia (1991), Denmark (1987),France (1993), Greece (1993), Italy (1993), Japan (1993), NewZealand (1987), the United Kingdom (1974), and the United Kingdom(1991), as well as a crisis in Germany around 1980 which does notcorrespond to a recession in our sample. In addition to the AEs,Reinhart and Rogoff also identify eight crises in the EMEs, fewerthan in our sample: Argentina (2002), Colombia (1999), Hong Kong(1998), Indonesia (1998), Korea (1998), Malaysia (1998), thePhilippines (1998), and Thailand (1998). Return to text

9.  Housing declines were common but not universal in the most recentrecession, so are not included in this part of the analysis.Including the severe housing downturn as an explanatory variablefor the pace of the U.S. recovery, the current recovery is stillunderperforming the model's expectation but by only onepercent. Return to text

10.   Prior to the annual revision in July,the actual path of the U.S. recovery was very close to what wouldbe predicted by the depth and duration regressions. Return to text

11.   The countries included are Australia,Austria, Canada, Finland, France, Germany, Ireland, Italy, Japan,Korea, Norway, Spain, Sweden, the UK, and the US. Return to text

12.   This section of the paper usesrecession dating by the NBER in order to include the 2001recession. The only other notable change is that NBER classifiesthe pre-recession peak of the Great Recession as 2007 Q3 instead of2008 Q1. Return to text

13.   For individual recessions, we use thetrend based on the average growth in the five years prior to thepre-recession peak because the four-year average two years prior tothe peak introduces too much noise. Without the benefit of anaverage over a large sample, the results are much more difficult tointerpret. Return to text

This version is optimized for useby screen readers. Descriptions for all mathematical expressionsare provided in LaTex format. A printablepdf version is available. Returnto text
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