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Thursday, December 18, 2014

'Maybe There's No Such Thing as a Business Cycle'

Noah Smith:

Maybe There's No Such Thing as a Business Cycle: ...The word “cycle” conjures up images of waves and seasons, but the business cycle isn’t a regular cycle like that (if it were, it would be easy to predict the next recession). Economists actually think that recessions and booms are random temporary disturbances of a smooth trend of long-term growth. ...
In other words, modern macroeconomic theories all assume that recessions are temporary -- that they don’t permanently damage the economy’s productive potential. If that assumption is wrong, then most modern macroeconomic theories are barking up the wrong tree. ...
In fact, the evidence is now piling up that the 2008 recession did have lasting effects. ... It may simply be time to stop thinking of the business cycle as a cycle.

For more on this issue, I encourage you to read "You’ve Got Potential" at the Growth Economics Blog.

    Posted by on Thursday, December 18, 2014 at 10:02 AM in Economics | Permalink  Comments (22)


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