The Elusive "Great" Recovery: Causes and Implications for Future Business Cycle Dynamics
60th Economic Conference
The recovery from the Great Recession has been, at least in terms of GDP growth, remarkably slow. Does the nature of the recent rebound shed light on whether future recoveries will exhibit a similar pattern? Much has been made of the impact that the financial crisis has had in shaping the current recovery, but it has been marked by several significant puzzles underlying the weak rebound in economic activity, any of which might help explain the slow return to full capacity and target inflation. Why, after moving tentatively in the first two years of the recovery, has the unemployment rate declined significantly thereafter, notwithstanding the poor performance of GDP? Why has the rate of labor force participation for prime-age workers dropped? Given the evolution of household income and net worth, why have consumers been spending less than expected? What factors drove the surprisingly small decline of inflation during the recession, and what factors have affected the surprisingly slow convergence to target during the recovery? Did the severity of the recession and the length of the recovery permanently affect the economy? This conference will focus on distinguishing between the various explanations for the anomalies that have characterized this recovery, and will pay particular attention to any implications for the patterns we might expect future recoveries to exhibit.