Publication Date: October 2020
Revision Date: January 2021
Nine U.S. recessions and three expansions are analyzed in this paper using a structural macroeconometric model. With two exceptions and one partial exception, the episodes are predicted well by the model, including the 2008-2009 recession, conditional on the actual values of the exogenous variables. The main exogenous variables are stock prices, housing prices, import prices, exports, and exogenous government policy variables. Monetary policy is endogenous. Fluctuations in stock and housing prices (housing prices after 1995) are important drivers of output fluctuations—large wealth eﬀects on household expenditures. In explaining the 2008-2009 recession detailed ﬁnancial variables such as credit-constraint variables are not needed for the aggregate predictions. The sluggish recovery after the 2008-2009 recession is explained in large part by sluggish government spending. There is no evidence of secular stagnation.
Keywords: Business cycles, Recessions, Expansions
JEL Classification Codes: E1, E3CFDP 2260