The Cause of the Great Recession: What Caused the Downward Shift of the GDP Trend in the United States?

Harashima, Taiji (2016): The Cause of the Great Recession: What Caused the Downward Shift of the GDP Trend in the United States?

Abstract

The trend of the gross domestic product (GDP) of the United States clearly shifted downward after the Great Recession of 2008. This shift indicates that the cause of the Great Recession was a change in a fundamental factor that had the potential to significantly affect the steady state. In this paper, I examine three possible causes for the shift: a change in technology, a change in preferences, and a sudden malfunctioning of the price mechanism. I conclude that an upward shift of the expected rate of time preference is the most likely cause of the Great Recession. In addition, I estimated the yearly expected rate of time preference of the United States and found that the expected rate of time preference shifted upwards by 1–2 percentage points when the Great Recession began. I also estimated the expected rate of time preference for Japan and found that the rate increased prior to the extended period of economic stagnation during the 1990s.

• Item Type: MPRA Paper
• Language: English
• Keywords: The Great Recession; Time preference; Economic fluctuations
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N12 - U.S. ; Canada: 1913-

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