Munich Personal RePEc Archive

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?

[img]
Preview
PDF
MPRA_paper_69215.pdf

Download (1MB) | Preview

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.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.