Liberty Street Economics
Return to Liberty Street Economics Home Page

12 posts on "Great Recession"

September 24, 2014

Developing a Narrative: The Great Recession and Its Aftermath



Third in a five-part series
This series examines the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (FRBNY DSGE) model—a structural model used by Bank researchers to understand the workings of the U.S. economy and provide economic forecasts. The severe recession experienced by the U.S. economy between December 2007 and June 2009 has given way to a disappointing recovery. It took three and a half years for GDP to return to its pre-recession peak, and by most accounts this broad measure of economic activity remains below trend today. What precipitated the U.S. economy into the worst recession since the Great Depression? And what headwinds are holding back the recovery? Are these headwinds permanent, calling for a revision of our assessment of the economy’s speed limit? Or are they transitory, although very long-lasting, as the historical record on the persistent damages inflicted by financial crisis seems to suggest? In this post, we address these questions through the lens of the FRBNY DSGE model.

Continue reading "Developing a Narrative: The Great Recession and Its Aftermath" »

August 13, 2014

Why Didn’t Inflation Collapse in the Great Recession?



GDP contracted 4 percent from 2008:Q2 to 2009:Q2, and the unemployment rate peaked at 10 percent in October 2010. Traditional backward-looking Phillips curve models of inflation, which relate inflation to measures of “slack” in activity and past measures of inflation, would have predicted a substantial drop in inflation. However, core inflation declined by only one percentage point, from 2.2 percent in 2007 to 1.2 percent in 2009, giving rise to the “missing deflation” puzzle. Based on this evidence, some authors have argued that slack must have been smaller than suggested by indicators such as the unemployment rate or deviations of GDP from its long-run trend. On the contrary, in Monday’s post, we showed that a New Keynesian DSGE model can explain the behavior of inflation in the aftermath of the Great Recession, despite large and persistent output gaps. An implication of this model is that information about the future stance of monetary policy is very important in determining current inflation, in contrast to backward-looking Phillips curve models where all that matters is the current and past stance of policy.

Continue reading "Why Didn’t Inflation Collapse in the Great Recession?" »

September 25, 2013

Catching Up or Falling Behind? New Jersey Schools in the Aftermath of the Great Recession

Rajashri Chakrabarti and Max Livingston

Today’s post, which complements Monday’s on New York State and a set of interactive graphics released by the New York Fed earlier, assesses the effect of the Great Recession on educational finances in New Jersey. The Great Recession severely restricted state and local funds, which are the main sources of funding for schools. To help avoid steep budget cuts to schools, the federal government allocated $100 billion for education as part of the American Recovery and Reinvestment Act of 2009 (ARRA), also known as the stimulus. The stimulus money was meant to provide temporary relief to strained state and local budgets. However, after the stimulus funds were exhausted, the economy was still weak and school districts were faced with large budget shortfalls.

Continue reading "Catching Up or Falling Behind? New Jersey Schools in the Aftermath of the Great Recession" »

Posted by Blog Author at 7:00 AM in Great Recession, New Jersey, Recession | Permalink | Comments (0)

September 23, 2013

Waiting for Recovery: New York Schools and the Aftermath of the Great Recession

Rajashri Chakrabarti and Max Livingston

A key institution that was significantly affected by the Great Recession is the school system, which plays a crucial role in building human capital and shaping the country’s economic future. To prevent major cuts to education, the federal government allocated $100 billion to schools as part of the American Recovery and Reinvestment Act of 2009 (ARRA), commonly known as the stimulus package. However, the stimulus has wound down while many sectors of the economy are still struggling, leaving state and local governments with budget squeezes. In this post, we present some key findings on how school finances in New York State fared during this period, drawing on our recent study and a series of interactive graphics. As the stimulus ended, school district funding fell dramatically and districts across the state enacted significant cuts across the board, affecting not only noninstructional spending but also instructional spending—the category most closely related to student learning.

Continue reading "Waiting for Recovery: New York Schools and the Aftermath of the Great Recession" »

February 06, 2013

How Did Education Financing in New Jersey’s Abbott Districts Fare during the Great Recession?

Rajashri Chakrabarti and Sarah Sutherland

In the state of New Jersey, any child between the ages of five and eighteen has the constitutional right to a thorough and efficient education. The state also has one of the country’s most rigid policies regarding a balanced budget. When state and local revenues took a big hit in the most recent recession, officials had to make tough decisions about education spending. In this post, we analyze education financing and spending in two groups of high-poverty districts during the Great Recession and the ARRA (American Recovery and Reinvestment Act of 2009) federal stimulus period—the Abbott and Bacon districts. Analysis in our recent New York Fed staff report shows that the Abbott districts exhibited the sharpest declines—relative to trend—in both total funding and total spending per pupil during the post-recession era. Additionally, the Abbott districts were the only group of districts in New Jersey to present statistically significant negative shifts in instructional spending, even with the federal stimulus.

Continue reading "How Did Education Financing in New Jersey’s Abbott Districts Fare during the Great Recession?" »

May 14, 2012

The Great Moderation, Forecast Uncertainty, and the Great Recession

Ging Cee Ng* and Andrea Tambalotti

The Great Recession of 2007-09 was a dramatic macroeconomic event, marked by a severe contraction in economic activity and a significant fall in inflation. These developments surprised many economists, as documented in a recent post on this site. One factor cited for the failure to anticipate the magnitude of the Great Recession was a form of complacency affecting forecasters in the wake of the so-called Great Moderation. In this post, we attempt to quantify the role the Great Moderation played in making the Great Recession appear nearly impossible in the eyes of macroeconomists.

Continue reading "The Great Moderation, Forecast Uncertainty, and the Great Recession" »

Posted by Blog Author at 7:00 AM in Great Recession, Macroecon | Permalink | Comments (0)

April 16, 2012

Forecasting the Great Recession: DSGE vs. Blue Chip

Marco Del Negro, Daniel Herbst,* and Frank Schorfheide

Dynamic stochastic general equilibrium (DSGE) models have been trashed, bashed, and abused during the Great Recession and after. One of the many reasons for the bashing was the models’ alleged inability to forecast the recession itself. Oddly enough, there’s little evidence on the forecasting performance of DSGE models during this turbulent period. In the paper “DSGE Model-Based Forecasting,” prepared for Elsevier’s Handbook of Economic Forecasting, two of us (Del Negro and Schorfheide), with the help of the third (Herbst), provide some of this evidence. This post shares some of our results.

Continue reading "Forecasting the Great Recession: DSGE vs. Blue Chip" »

February 01, 2012

Tough Decisions, Depleted Revenues: New Jersey’s Education Finances during the Great Recession

Rajashri Chakrabarti and Sarah Sutherland*

Today’s post, which complements Monday’s on New York State, considers the Great Recession’s impact on education funding in New Jersey. Using analysis published in our recent staff report, “Precarious Slopes? The Great Recession, Federal Stimulus, and New Jersey Schools,” we examine how school finances were affected during the recession and the ARRA federal stimulus period. We find strong evidence of a significant decline—relative to trend—in school revenues and expenditures following the recession as well as key compositional changes that could affect school financing and student learning. Our findings are noteworthy in view of the importance of investing in children’s education for human capital formation and economic growth.

Continue reading "Tough Decisions, Depleted Revenues: New Jersey’s Education Finances during the Great Recession" »

January 30, 2012

How Did the Great Recession Affect New York State’s Public Schools?

Rajashri Chakrabarti and Elizabeth Setren*

Surprisingly, there is no literature on how recessions (including the Great Recession) have affected schools. Perhaps this is because educational funding stresses and decisions vary among and within states, which makes it hard to reach general conclusions. Yet schools play an indispensable role in our society, educating the populace and building the nation’s future. Therefore, it is important to understand how the Great Recession is affecting public spending on schools, the delivery of education services, and student learning. In this post, we analyze one state’s experience, drawing on our study “The Impact of the Great Recession on School District Finances: Evidence from New York.” While we do not find evidence of much impact on schools’ overall revenue or expenditures, we do detect important compositional changes that could affect both student learning and school financing in coming years.

Continue reading "How Did the Great Recession Affect New York State’s Public Schools?" »

Posted by Blog Author at 7:00 AM in Education, Great Recession, Recession, Regional Analysis | Permalink | Comments (1)

November 25, 2011

The Failure to Forecast the Great Recession

Simon Potter


Experience shows that what happens is always the thing against
which one has not made provision in advance
.

-- John Maynard Keynes1



Our best plan is to plan for constant change and the potential for instability, and to recognize that the threats will constantly be changing in ways we cannot predict or fully understand.

-- Timothy Geithner2

The economics profession has been appropriately criticized for its failure to forecast the large fall in U.S. house prices and the subsequent propagation first into an unprecedented financial crisis and then into the Great Recession. In this post, I examine the performance of the forecasts produced by the economic research staff of the Federal Reserve Bank of New York (New York Fed) over the period 2007-10 and consider some of the reasons why we, like most private sector forecasters, failed to predict the Great Recession. This spreadsheet contains staff forecasts, the outcomes, and a standard measure of private sector forecasts—the Blue Chip consensus. In addition, staff material prepared for bi-annual meetings of the New York Fed Economic Advisory Panel provide some further insights into the evolution of the staff outlook.

Continue reading "The Failure to Forecast the Great Recession" »

About the Blog
Liberty Street Economics features insight and analysis from economists working at the intersection of research and policy. The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Donald Morgan.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.


Economic Research Tracker

Liberty Street Economics is now available on the iPhone® and iPad® and can be customized by economic research topic or economist.


Useful Links
Comment Guidelines
We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:
Please be brief: Comments are limited to 1500 characters.
Please be quick: Comments submitted after COB on Friday will not be published until Monday morning.
Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.
Please be on-topic and patient: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post. We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will not be posted.‎
Disclosure Policy
The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.
Archives