Defining Recessions and Expansions
How recessions and expansions are defined. The answer is that there is no exact definition!
In many countries, economists adopt the rule that a recession is a period of at least two consecutive quarters (a quarter is three months), during which aggregate output falls. The two-consecutive-quarter requirement is designed to avoid classifying brief hiccups in the economy’s performance, with no lasting significance, as recessions.
Sometimes, however, this definition seems too strict. For example, an economy that hasthree months of sharply declining output, then three months of slightly positive growth, then another three months of rapid decline, should surely be considered to have endured a nine-month recession.
In the United States, economists try to avoid such misclassifications by assigning the task of determining when a recession begins and ends to an independent panel of experts at the National Bureau of Economic Research (NBER). This panel looks at a variety of economic indicators, with the main focus on employment and produc-
Year
tion, but ultimately, the panel makes a judgment call. Sometimes this judgment is controversial. In fact, there is lingering controversy over the 2001 recession. According to the NBER, that recession began in March 2001 and ended in November 2001, when output began rising. Some critics argue, however, that the recession really began several months earlier, when industrial production began falling. Other critics argue that the recession didn’t really end in 2001 because employment continued to fall and the job market remained weak for another year and a half.
How recessions and expansions are defined. The answer is that there is no exact definition!
In many countries, economists adopt the rule that a recession is a period of at least two consecutive quarters (a quarter is three months), during which aggregate output falls. The two-consecutive-quarter requirement is designed to avoid classifying brief hiccups in the economy’s performance, with no lasting significance, as recessions.
Sometimes, however, this definition seems too strict. For example, an economy that hasthree months of sharply declining output, then three months of slightly positive growth, then another three months of rapid decline, should surely be considered to have endured a nine-month recession.
In the United States, economists try to avoid such misclassifications by assigning the task of determining when a recession begins and ends to an independent panel of experts at the National Bureau of Economic Research (NBER). This panel looks at a variety of economic indicators, with the main focus on employment and produc-
Year
tion, but ultimately, the panel makes a judgment call. Sometimes this judgment is controversial. In fact, there is lingering controversy over the 2001 recession. According to the NBER, that recession began in March 2001 and ended in November 2001, when output began rising. Some critics argue, however, that the recession really began several months earlier, when industrial production began falling. Other critics argue that the recession didn’t really end in 2001 because employment continued to fall and the job market remained weak for another year and a half.
No comments:
Post a Comment