Forecasting the strongRecoverystrong from the Great Recession Is This.pdfVIP

Forecasting the Recovery from the Great Recession: Is This Time Different? Kathryn M.E. Dominguez and Matthew D. Shapiro University of Michigan and NBER January 2013 The authors are grateful to Allen Sinai for excellent discussant comments and suggestions. Forecasting the Recovery from the Great Recession: Is This Time Different? ABSTRACT This paper asks whether the slow recovery of the US economy from the trough of the Great Recession was anticipated, and identifies some of the factors that contributed to surprises in the course of the recovery. It constructs a narrative using news reports and government announcements to identify policy and financial shocks. It then compares forecasts and forecast revisions of GDP to the narrative. Successive financial and fiscal shocks emanating from Europe, together with self-inflicted wounds from the political stalemate over the US fiscal situation, help explain the slowing of the pace of an already slow recovery. Kathryn M.E. Dominguez Matthew D. Shapiro Department of Economics and Department of Economics and and Ford School of Public Policy Survey Research Center University of Michigan University of Michigan Ann Arbor MI 48109-1220 Ann Arbor MI 48109-1220 and NBER and NBER It was well-understood that the US economy was slowing heading into 2008, and indeed policy moved toward stimulus with an aim to moderate the slowdown in growth.