From great depression to great recession

This paper presents an overview of the history of thought on the factor content of trade. It emphasizes that the conditions of factor price equalization do not hold. It describes a theory of destructive trade that is at the root of the Great Recession of 2008 and 2009. Jobs outsourced to low-wage countries may have long-run effects on unemployment in countries that are abundant in capital.     

Crude oil price volatility dynamics and the great recession

Using a very simple econometric framework, we identify two major changes in the dynamics of crude oil price volatility based on data from 1997 to 2017. More precisely, we model weekly West Texas Intermediate (WTI) crude oil price realized volatility in a two-regime setting, one where realized volatility evolves as a plain autoregressive (AR) process (static), and the other where the level, persistence and innovation volatility of the AR process are subject to changes (dynamic). We use a Markov chain to model the probability that the process is in the static regime. The post Great Recession period sees a longer duration of the dynamic regime as well as smaller changes in the level and conditional volatility of realized volatility when switching actually occurs. Crude oil volatility also responds more aggressively to changes in economic variables, such as the t-bill rate and equity market volatility in the dynamic regime.     

The business cycle,labor market transitions by age,and the great recession

Using matched monthly CPS data, this article studies differences in labour force transitions across age groups focusing on periods prior to and after the start of the Great Recession. Monthly transitions between employment, unemployment, and nonparticipation of 25–55-year-old males are examined from 1996 through 2013. Prior to the Great Recession (1996–2007), younger groups of workers are more likely to move from employment to unemployment and face an increased risk beyond that of other workers of making this transition as the economy worsens; however, this differential responsiveness no longer appears after the start of the Great Recession. Before and after the start of the Great Recession, younger groups of workers are more likely to move from unemployment to employment; however, there is no extra responsiveness among younger workers to the business cycle. Transitions into and out of the labour force nuance these findings; however, there is no evidence of differential responsiveness among younger workers since the start of the Great Recession. These findings challenge interpretation of the movements of unemployment rates by age group over the business cycle as being driven by differential hiring and firing particularly since the start of the Great Recession.     

After the great recession : financial sophistication and housing leverage

US households face various choices in saving for retirement, with one of the most common decisions related to maintaining or paying off a mortgage. Using the 2010 and 2013 Survey of Consumer Finances, this study investigates the relationship between financial sophistication and mortgage decisions among middle-age households. A Heckman two-stage selection model is employed to investigate two separate decisions: mortgage holding and loan-to-value (LTV) ratios among mortgage holders. Results indicate that financial sophistication is positively associated with carrying a mortgage and higher LTV ratios. These results imply that financially sophisticated households may be using leverage to increase asset returns.     

Unemployment rate hysteresis and the great recession: exploring the metropolitan evidence

Standard unit-root tests of the hysteresis hypothesis specify a unit root under the null against the stationary alternative of the natural-rate hypothesis,     

Understanding policy in the great recession: Some unpleasant fiscal arithmetic

I use the valuation equation of government debt to understand fiscal and monetary policy in and following the great recession of 2008–2009. I also examine policy alternatives to avoid deflation, and how fiscal pressures might lead to inflation. I conclude that the central bank may be almost powerless to avoid deflation or inflation; that an eventual fiscal inflation can come well before large deficits or monetization are realized, and that it is likely to come with stagnation rather than a boom.     

Swimming upstream throughout the turmoil: Evidence on firm growth during the great recession

Economic downturns significantly impact on industry and firm dynamics. During a slowdown, increased competitive pressure makes less efficient firms more likely to exit (the cleansing hypothesis). However, evidence on Italian manufacturing firms during the Great Recession contrasts with this view. In fact, a not negligible subset of firms grew considerably during the crisis, increasing intra-industry heterogeneity. In this paper, we study these swimming upstream firms (SUFs) and we obtain two results. First, SUFs exhibit a high capability accumulation profile (innovation, intangibles investments and internationalization). Second, the impact of endogenous capability accumulation does not vanish after controlling for exogenous factors.     

The rise of part-time employment in the great recession: Its causes and macroeconomic effects

During the Great Recession, the U.S. economy witnessed a substantial rise in part-time employment for a sustained period. We extend the New Keynesian unemployment model by Galí et al. (2012) to allow substitutions between full-time and part-time labor, and estimate the model’s parameters by using the Bayesian method. In our model, households and firms can optimally allocate full-time and part-time labor, and disturbances exist in part-time labor supply (household disutility from part-time labor) and part-time labor demand (firms’ efficiency to use part-time labor). As for the Great Recession, the initial increase in part-time employment at the outset of the financial crisis is mostly explained by the rise of the risk premia; the persistently high level of part-time employment in the later period is mainly explained by an exogenous increase in part-time labor supply. A part-time labor supply shock also explains a significant portion of slow recovery in the gross wage during the recession, as the shock lowers the part-time wage and the proportion of full-time workers in total employment. Notably, the results from our model suggest that though the transition from full-time to part-time jobs contributed to mitigating the sharp contraction in total employment and labor force during the Great Recession, it played only a limited role in relieving recessionary pressure.     

Losers amongst the Losers:: The welfare effects of the great recession across cohorts

This paper studies the effect of deep recessions on intergenerational inequality by quantifying the welfare effects on households at different phases of the life cycle. Deep recessionary episodes are characterized by large declines in the prices of real and financial assets and in employment. The former levies high welfare costs on older households who own financial wealth, the latter determines labour income losses and destroys the human capital of younger cohorts, lowering their productivity. The paper extends previous analyses in the literature by including permanent labour income losses in an OLG model calibrated to match the Great Recession. The analysis shows that younger households lose more than double of all other living cohorts, as younger household become unemployed and experience a decline in their future income. The dynamics of households’ consumption and portfolio composition between 2007 and 2013 in the US are consistent with the predictions of the model.     

Do interest groups reward politicians for their votes in the legislature? Evidence from the great recession

ABSTRACT

Interest groups lobby politicians in various ways to influence their policy decisions, especially, their voting decisions in the legislature. Most, if not all, of the studies on this issue examine ”pre-vote” lobbying activities of interest groups that occur before politicians vote in the legislature. In this paper, however, I examine ”post-vote” lobbying activities of interest groups that occur after politicians vote in the legislature. By using data on the amount of monetary contributions given by interest groups to the members of the U.S. House of Representatives who have served in the 109th (2005–06) through 111th (2009–10) Congress, I find evidence that voting in favour of the Emergency Economic Stabilization Act (EESA) of 2008, one of the most significant pieces of legislation and possibly the biggest government bailout in U.S. economic history, has increased the amount of monetary contributions that politicians receive from the interest groups in the financial sector after the passage of the EESA. I also discuss two reasons for such post-vote lobbying and find empirical evidence for one of them.     

The gender difference in wages and the returns to schooling over the great recession in the U.S.

This paper examines the effects of the Great Recession on the gender difference in hourly wage and the rate of return to schooling in the United States. Using data from American Community Survey 2000–2015, we find that the male-female difference in hourly wage declined during and after the recession. The Great Recession decreased earnings for both men and women, especially for those with more education. We also find there is a significant gender difference in the effects of the Great Recession on the returns to schooling. The Great Recession increased the rate of return to schooling for both men and women, and the female-male difference in the returns to schooling decreased by 0.4 percentage points in the post-recession period. The change of the gender difference in the returns to schooling can be explained by the wage structure change for men and women over the recession.     

Economic recession, skilled unemployment and welfare

The paper develops a three-sector, specific factor, general equilibrium model with two high-skill sectors and unemployment of skilled labor. One of the two high-skill sectors produces a non-traded commodity whose aggregate demand consists of both domestic demand and an exogenously given foreign demand. The consequences of a decline in the foreign demand for the non-traded good resulting from worldwide economic recession on the skilled and unskilled labor markets in a developing economy have been examined. The analysis finds that the effects on the labor markets crucially hinge on the relative factor intensities of the two high-skill sectors and that through the adoption of appropriate fiscal measures; the country can shield its workforce from the rage of global economic downturn.     

An econometric evaluation of the management of large-scale transport infrastructure in Spain during the great recession: Lessons for infrastructure bubbles

This paper reviews the way that air, rail, and toll motorways infrastructure have evolved in Spain since the beginning of the century, when all these types of transport have been subjected to a far-reaching economic crisis. Investments made in infrastructure during this time will also be analyzed in relative terms and compared to other countries in the European Union, as will the various policies applied to each of these modes of transport. The methodology applied in this paper is of the bottom-up type, in the sense that a thorough univariate–uniequational analysis is performed before proceeding to more complex, multivariate models. We found that the policy to drop fare prices for the HSR (AVE) has had an almost 14% positive effect on the number of passengers per kilometer for HS and long-distance trains, but it has also had a negative effect of as much as 16.7% on the number of domestic air passengers. The increase in airport taxes has not affected any of the endogenous variables, or major public investments in air terminals and new HSR lines, except for the Madrid–Barcelona AVE and Barcelona's T1. Domestic air transport has been seen to be more sensitive to the economic cycle than the other modes of transport. This paper contains a set of results that justify the need to use full and accurate “economic modeling” in the planning and management of what is generally very costly transport infrastructure.     

Information, organization, and freedom: Explaining the great reversal

We suggest, in a Coase-Demsetz perspective, that the social demand for individual rights??or freedoms (whether civil, political or economic)??is derived from, because complementary to, the changing size of hierarchical organizations. The general downsizing and decentralization process observed worldwide after 1975 is itself the result of the information revolution and the resulting abundance of information. It follows that social demand for freedoms depends in turn??and inversely??on the cost of information (and thus on market imperfection) as well as on traditional determinants such as the distribution of resources and human capital. This implies that freedoms are adopted, implemented, or ??produced?? by various political regimes according to an objectively observable and contingent determinant. We believe this approach can shed light on the reason for the waxing and waning of freedoms in modern history.     

Yield spreads,currency movements,and recession predictability for southern border economies in the United States

Prior research establishes that the spread between long- and short-term bond yields often provides valuable information for predicting business cycle downturns. This study examines the predictive capacity of the yield spread for the United States metropolitan economies situated along the border with Mexico. Because of the location of these urban economies and various economic ties linking them with twin cities across the border, the Mexico yield spread, and the real dollar/peso exchange rate are also employed as potential recession predictors. Results suggest that a flattening of the yield curve for either country tends to increase the probability of recessions in border economies. Furthermore, declines in the real value of the peso, which are typically associated with greater cross-border manufacturing activity, are found to reduce recession likelihoods in the metropolitan economies examined on the north side of the international boundary.     

Payment uncertainty, the division of labor, and productivity declines in great depressions

This paper proposes a simple model that formalizes a variant of Ohanian's conjecture explaining the productivity declines observed in the Great Depression [Ohanian, L.E., 2001. Why did productivity fall so much during the Great Depression? American Economic Review 91 (2), 34–38]. If a large payment shock like an asset-price collapse renders many firms insolvent, other economic agents become exposed to a higher risk of not being paid (payment uncertainty). The payment uncertainty causes endogenous disruptions of the division of labor among firms, thereby lowering macroeconomic productivity.The prediction of the model is that productivity correlates negatively with bankruptcies and positively with the cost share of intermediate inputs, which is consistent with the data from depression episodes. The model implies that the so-called failure of macroeconomic policy in the United States during the early 1930s, when a rash of bankruptcies occurred, could actually have been welfare enhancing, since the quick exit of insolvent agents can resolve payment uncertainty quickly.