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5 - The Postwar Recessions

Published online by Cambridge University Press:  05 June 2014

Steven D. Gjerstad
Affiliation:
Chapman University, California
Vernon L. Smith
Affiliation:
Chapman University, California
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Summary

“[T]he investment component of output is about six times as volatile as the consumption component.”

– Edward C. Prescott (1986a)

“[T]echnology shocks account for more than half the fluctuations in the postwar period, with a best point estimate near 75 percent.”

– Edward C. Prescott (1986b)

“[R]esidential investment causes, but is not caused by GDP [movements], while non-residential investment does not cause, but is caused by GDP [movements].”

– Richard K. Green (1997)

In this chapter, we examine the ten postwar recessions from 1948–9 to 2001 that preceded the Great Recession. The role of housing investment expenditures in both the Great Recession and the Depression is also manifest in the post–World War II period but with less catastrophic consequences. Recurrent patterns of interaction between housing investment and monetary policy are prominent elements of postwar U.S. economic cycles. Examination of these interactions clarifies one of the primary channels through which monetary policy affects output, especially in the period immediately preceding a recession, during the recession, and in the immediate aftermath of a recession.

Type
Chapter
Information
Rethinking Housing Bubbles
The Role of Household and Bank Balance Sheets in Modeling Economic Cycles
, pp. 122 - 145
Publisher: Cambridge University Press
Print publication year: 2014

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References

Bernanke, Ben (2010). “Monetary Policy and the Housing Bubble.” Paper presented at the 2010 American Economic Association meeting.
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Board of Governors of the Federal Reserve (2003). Press Release. June 25. Available at .
Fatás, Antonio, Kannan, Prakash, Rabanal, Pau, and Scott, Alasdair (2009). “Lessons for Monetary Policy from Asset Price Fluctuations.” In World Economic Outlook (Fall, Ch. 3). Washington, DC: International Monetary Fund.Google Scholar
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Green, Richard K. (1997). “Follow the Leader: How Changes in Residential and Non-Residential Investment Predict Changes in GDP.” Real Estate Economics, 25, pp. 253–70.CrossRefGoogle Scholar
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Leamer, Edward E. (2007). “Housing Is the Business Cycle.” Federal Reserve Bank of Kansas City, Jackson Hole [Wyoming] Symposium.CrossRef
Prescott, Edward C. (1986a). “Theory Ahead of Business Cycle Measurement.” Federal Reserve Bank of Minneapolis Quarterly Review, 10, pp. 9–22.
Prescott, Edward C. (1986b). “Response to a Skeptic.” Federal Reserve Bank of Minneapolis Quarterly Review, 10, pp. 28–33.

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