Countercyclical Policy and the Speed of Recovery After Recessions

by Sabrina I. Pacifici on October 30, 2013

Countercyclical Policy and the Speed of Recovery After Recessions - Working Paper 2013-032A by Neville Francis, Laura E. Jackson, and Michael T. Owyang, Federal Reserve Bank of St. Louis. October 22, 2013

“The nature of the business cycle appears to have changed. Prior to the 1990s, recoveries from recessions were quick and steep; after the past three recessions, however, recoveries were weak and prolonged. We consider the effect of a number of countercyclical policies intended to shorten recessions and speed recoveries. Our innovation is to analyze the duration of the recoveries of various U.S. states, which gives us a cross-section of both state- and national- level policies. Because we study multiple recessions for the same state and multiple states for the same recession, we can control for differences in the economic conditions preceding the recessions and the causes of the recessions when evaluating various policies. We find that expansionary monetary policy at the national level helps to stimulate the exit of individual states from recession. We also find certain factors extend expected recovery times: other states in the same region suffering from recession around the same time, the length of the preceding recession, and shocks to oil prices at the peak.”

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