Booms, Crises, and Recoveries: A New Paradigm of the Business Cycle and its Policy Implications

Author/Editor:

Valerie Cerra ; Sweta Chaman Saxena

Publication Date:

November 16, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

All types of recessions, on average, not just those associated with financial and political crises (as in Cerra and Saxena, AER 2008), lead to permanent output losses. These findings have far-reaching conceptual and policy implications. A new paradigm of the business cycle needs to account for shifts in trend output and the puzzling inconsistency of output dynamics with other cyclical components of production. The ‘output gap’ can be ill-conceived, poorly measured, and inconsistent over time. Persistent losses require more buffers and crisis-avoidance policies, affecting tradeoffs in prudential, macroeconomic, and reserve management policies. The frequency and depth of crises are key determinants of long-term growth and drive a new stylized model of economic development.

Series:

Working Paper No. 17/250

Subject:

English

Publication Date:

November 16, 2017

ISBN/ISSN:

9781484325759/1018-5941

Stock No:

WPIEA2017250

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

31

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