Uncertainty and the Great Recession

Has heightened uncertainty been a major contributor to the Great Recession and the slow recovery in the United States? To answer this question, we identify exogenous changes in six uncertainty proxies and quantify their contributions to GDP growth and the unemployment rate. The answer is no. In total we find that increased macroeconomic and financial uncertainty can explain up to 10% of the drop in GDP at the height of the recession and up to 0.6 percentage points of the increased unemployment rates in 2009 through 2011. Our calculations further suggest that only a minor part of the rise in popular uncertainty measures during the Great Recession was driven by exogenous uncertainty shocks.     

The credit crunch and fall in employment during the Great Recession

We study how a bank credit crunch—a dramatic worsening of firm and consumer access to bank credit, such as the one observed over the Great Recession—translates into job losses in U.S. manufacturing industries. To identify the impact of the recent credit crunch, we rely on differences in the degree of dependence on external finance and of tangibility of assets across manufacturing industries and in the sensitivity of these industries׳ output to changes in the supply of consumer credit. We find that, for employment, household access to bank loans matters more than firm access to bank loans. In addition, we show that, over the recent financial crisis, tightening access to commercial and industrial loans and, in particular, consumer installment loans may have contributed significantly to the drop in employment in the manufacturing sector.     

重复大萧条时代?

有一句老生常谈的话:"历史总是惊人的相似。"不过,人类的记性似乎并不是太好。"前车之鉴"的话虽说常常挂在嘴边,可"重蹈覆辙"的事从来都不少见。于是,历史也就只好这么"惊人的相似"下去。人类似乎还有一种由来已久的习惯,这就是:每当有重大的社会变革或社会危机出现的时候,总有人喜欢去翻翻历史这本老账,这一翻不打紧,往往会把自己吓一大跳,或者倒吸一口凉气:何其相似乃尔!     

Causes and Cures of the Great Recession

The Great Recession was not a failure of free markets. Rather it was a classic example of the undesirable unintended consequences of government intervention, both through expansionary monetary policy and misguided attempts to bolster the housing market in the USA. Getting government out of banking is the best way to end the disastrous boom and bust cycles that have characterised the last century and a half.     

Mismatch Shocks and Unemployment During the Great Recession

We investigate the macroeconomic consequences of fluctuations in the effectiveness of the labor market matching process with a focus on the Great Recession. We conduct our analysis in the context of an estimated medium‐scale dynamic stochastic general equilibrium model with sticky prices and equilibrium search unemployment that features a shock to the matching efficiency (or mismatch shock). We find that this shock is not important for unemployment fluctuations in normal times. However, it plays a somewhat larger role during the Great Recession when it contributes to raise the actual unemployment rate by around 1.3 percentage points and the natural rate by around 2 percentage points. The mismatch shock is the dominant driver of the natural rate of unemployment and explains part of the recent shift of the Beveridge curve. Copyright © 2016 John Wiley & Sons, Ltd.     

Considering interrelationships in strategic decisions

Accounting-based valuation studies of US firms tend to support Ohlson's proposition that residual income and book value numbers have information content in explaining observed market values. But European evidence also suggests that the conservative/liberal orientation of accounting tradition can produce significant national differences in associations between accounting performance measures and stock prices - in earnings behaviour, coefficient values and parameter sensitivity. We address these issues from an equity valuation perspective using Swedish data to assess the additional information content of Ohlson's information dynamics and analysts' forecasts in relation to market valuations in a more conservative accounting environment than the US. The study compares the explanatory and predictive power of Ohlson's (1995) residual income model (RIV) with a linear information dynamics version (LIM) that specifies both residual income and non-accounting information as autoregressive processes. Both versions are applied with, and without, future performance expectations from non-accounting sources (analysts' forecasts). As with US evidence, we find that the inclusion of analysts' forecasts improves both (i) cross-sectional correlations with current prices for both RIV and LIM models and (ii) the predictive power of RIV models in relation to future annual cross-sectional stock returns. The contribution of linear information dynamics is significant but varies across approaches. We also find significant differences between Swedish and US firms in earnings behaviour and associations between accounting numbers and market equity prices.     

The Great Recession and Marx's Crisis Theory

To help understand why the Great Recession occurred, this article focuses on its underlying causes and employs Karl Marx's theory of capitalist economic crisis. It shows that U.S. corporations' rate of return on fixed asset investment fell throughout the half‐century preceding the recession, and that this fall accounts for the entire decline in their rate of capital accumulation (productive investment). The investment slowdown led to a decline in the rate of economic growth, which was a main cause of rising debt burdens, as were stimulative fiscal and monetary policies that delayed but exacerbated the effects of the underlying economic problems. The article also refutes the claim that the rate of profit could not really have fallen because massive redistribution of income from wages to profits took place, and it argues that it is unlikely that major crises of capitalism can be eliminated.     

Oligopoly firms with quantity-price strategic decisions

An agent-based model is used to determine market equilibrium with price-setting firms in an oligopoly market. The agent-based model is designed to match the experimental rules that Brandts and Guillen (J Ind Econ 55:453–474, 2007) used with human subjects. Their model uses posted prices and advance production of a perishable good. When the marginal cost is zero, the analytical Bertrand solution is almost perfect competition. When the marginal cost is nonzero, the game does not have a theoretical equilibrium in pure strategies. The agent-based model results show that with one or two firms, prices are at or near the monopoly level, which matches the human experiments. With four firms, prices are always at the perfectly competitive level when particle swarm optimization is used. Results using a genetic algorithm, however, are noisier than those using the particle swarm optimization, and the genetic algorithm falls short of the competitive solution. The triopoly market changes from mostly monopoly to a price in between monopoly and perfect competition when a marginal cost is added. The computerized agents tend to overproduce so that profits are negative in the three- and four-firm cases when production is costly. While the prices in the simulation are close to those observed in experiments with human subjects, the inefficiency due to overproduction is much greater in the agent-based model results. This result suggests that human agents are able to reach solutions, perhaps through social norms, that are missed by the simple agent-based rules used here.     

The temporary shutdown decision: Lessons from the Great Recession

The temporary shutdown condition provides guidance on dealing with a serious transitory downturn in demand. The traditional condition says managers should stop production when revenues fall below avoidable costs. This condition is flawed because it ignores how lost human capital and reputational damage harm future profits. As a consequence, firms may optimally operate with losses far larger than stipulated by the traditional condition. We provide the first broad empirical analysis of the temporary shutdown decision, focusing on the Great Recession. We show that large operating losses were common and temporary shutdowns were exceedingly rare, even among very small public firms.     

The Stock Market Crash Really Did Cause the Great Recession

This paper studies the connection between the stock market and the unemployment rate. I establish three facts. First, the log of the real value of the S&P 500 and the log of a logistic transformation of the unemployment rate are non‐stationary cointegrated series. Second, the stock market Granger causes the unemployment rate. Third, the connection between changes in the real value of the stock market and changes in the unemployment rate has remained structurally stable over seventy years. My results establish that the fall in the stock market in the autumn of 2008 provides a plausible causal explanation for the magnitude of the Great Recession.     

Antecedents of concession bargaining in the Great Recession: evidence from Ireland

Concession or ‘give back’ bargaining involves firms seeking changes in pay and conditions of employment from trade unions in return for pledges of enhanced job security and sometimes other forms of reciprocation. Several distinct modes of concession bargaining are distinguishable in the literature, and three modes of concession bargaining have been identified in Ireland during the Great Recession: integrative, distributive and minimal engagement. Deploying qualitatively informed quantitative data on the conduct of collective bargaining during the Great Recession, this article examines a series of antecedent influences on the choices firms make in conducting concession bargaining with unions.     

The Economic Deterioration of the Family: Historical Contingencies Preceding the Great Recession

The “Great Recession” in the United States exposed contradictions between the economic well‐being of families and capital that developed in the decades prior to this latest downturn. Using social structure of accumulation theory, a qualitative institutional analysis, and quantitative time‐series models, this article investigates historically contingent relations between the nature of public assistance, family economic deterioration, and capital accumulation. To sustain the circuit of capital, I argue that the family propped up economic growth first through public cash assistance and then through private expenditures, the latter of which lead to the economic deterioration of families dependent on unprecedented levels of debt.     

Adherence to environmental law: the strategic complementarities of compliance decisions

In this paper we address why firms comply with environmental regulations when enforcement is weak by suggesting that firms choose their level of environmental compliance strategically. Our theoretical model shows that compliance decisions among firms are strategic complements—increased compliance by one firm will positively influence the compliance rate of its rival. In our empirical analysis we find that the compliance rates of other regulated entities have a positive and significant effect on a regulated source's compliance behavior in three of our four heavily regulated industries. If compliance decisions are strategic complements, this may partially explain high compliance rates in the presence of limited regulatory pressure.     

Current production targets and strategic decisions by corporate managers

This article considers the potential role of current production targets in providing corporate managers with incentives for allocating their efforts toward operational and strategic decisions. Operational decisions relate to current production, while strategic decisions affect both current production and future profitability. A moral hazard exists to the extent that manager effort allocations are not observable. Of interest is the design of compensation contracts which efficiently resolve that hazard. Attention is mainly focused on distortions in current production away from targets which would be optimal if manager effort allocations were observable. The principal insight is that an increase in current production targets may, paradoxically, be motivated by a desire to induce a greater allocation of effort to strategic decisions.     

Negative home equity,economic insecurity,and household mobility over the Great Recession

This paper uses data from the 2007–09 Survey of Consumer Finances panel to examine U.S. households’ decisions to move during the Great Recession and the role of negative home equity and economic shocks, such as job loss, in these decisions. The recession's effects are nonetheless apparent in the notable fraction of homeowners who moved involuntarily due to, for example, foreclosure. Many involuntary moves appear to stem from a combination of negative home equity and adverse economic shocks rather than negative equity alone. Homeowners with both negative equity and economic shocks were substantially more likely to have moved between 2007 and 2009 and to have moved involuntarily. The findings suggest that, analogous to the double-trigger theory of default, the relationship between negative equity and household mobility varies with households’ exposure to adverse shocks.     

The impact of strategic operations management decisions on community hospital performance

Over the past decade, 10% of community hospitals have closed. In this challenging time, our study presents hospital administrators with some valuable information that can help improve community hospitals’ performance. The purpose of this paper is to develop a strategic operations management model that links long-term service choices, intermediate operations decisions, and hospital performance given the structural constraints of location, size, and medical teaching status. Data collected from 151 community hospitals are used to test the model. The research identifies strategic operations management decisions in the US community hospitals, shows their causal relationships, and identifies their effects on hospital performance. Specifically, we find that intermediate infrastructural operations decisions affect a community hospital’s cost, quality, and financial performance after the structural decisions of location and size have set the stage. Our study also reveals that community hospitals have adopted new staff and demand management decisions in response to the market needs.     

Bad news in the Great Depression,the Great Recession,and other U.S. recessions: A comparative study

In economic recessions consumption usually drops in tandem with other aggregate quantities as output or employment. Following the permanent income hypothesis, these drops can be rationalized by the idea that consumers have pessimistic views about their long-run income. Using a standard signal-extraction model, we show that this pessimism can be due either to a persistent fall of aggregate productivity before and during the recession (signaling a future decline of income), or to other negative information unrelated to contemporaneous fundamentals, which we label “bad news”. We classify U.S. recessions (from 1919 to 2015) according to a (bad) news index reflecting this negative information. We find that both the Great Depression and the Great Recession score highest in this index. The index is such that we can rule out that this is due merely to the length or the depth of these recessions. Instead, these two recessions are similar in that both were aggravated by a wave of pessimism about future income which cannot be related to contemporaneous fundamentals.     

The Great Depression versus the Great Recession in the U.S.: How fiscal,monetary, and financial polices compare

This study reviews the financial distress that triggered and amplified the financial crises of the Great Depression and Great Recession and compares macroeconomic and financial policy responses. Shadow banking funded the build-up of the financial excesses that preceded both. The quicker and forceful response of monetary and fiscal policy during the Great Recession and stronger action to restore market functionality mitigated the downturn and aided recovery. Nevertheless, actions to address the mortgage debt overhang were slower. Post-Depression reforms focused on preventing deposit runs and post-Great Recession reforms on preventing runs on bank debt and shadow banks while boosting capital buffers.