Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling

• Published in: Journal of economic literature Vol. 51; no. 4; pp. 1120 - 1154
• Main Authors: Ng, Serena, Wright, Jonathan H.
• Format: Journal Article
• Language: English
• Published: Nashville American Economic Association 01-12-2013
• Subjects: Business cycles; Capital market; Consumption; Econometrics; Economic activity; Economic conditions; Economic fluctuations; Economic models; Economic recessions; Economic statistics; Economic theory; Economic uncertainty; Financial economics; Forecasts; GDP; Great Recession; Gross Domestic Product; Macroeconomic modeling; Macroeconomics; Monetary policy; Monetary theory; Recession; Recessions; Studies; Time series; Trends; U.S.A; Volatility; Yield curves; United States > US
• ISSN: 0022-0515; 2328-8175
• DOI: 10.1257/jel.51.4.1120

This paper provides a survey of business cycle facts, updated to take account of recent data. Emphasis is given to the Great Recession, which was unlike most other postwar recessions in the United States in being driven by deleveraging and financial market factors. We document how recessions with financial market origins are different from those driven by supply or monetary policy shocks. This helps explain why economic models and predictors that work well at some times do poorly at other times. We discuss challenges for forecasters and empirical researchers in light of the updated business cycle facts.