TY  - JOUR
AU  - Stock,James H.
AU  - Watson,Mark W.
TI  - Disentangling the Channels of the 2007-2009 Recession
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18094
PY  - 2012
Y2  - May 2012
UR  - http://www.nber.org/papers/w18094
L1  - http://www.nber.org/papers/w18094.pdf
N1  - Author contact info:
James H. Stock
Department of Economics
Harvard University
Littauer Center M27
Cambridge, MA 02138
Tel: 617/496-0502
Fax: 617/495-7730
E-Mail: James_Stock@harvard.edu

Mark W. Watson
Department of Economics
Princeton University
Princeton, NJ 08544-1013
Tel: 609/258-4811
Fax: 609/258-5533
E-Mail: mwatson@princeton.edu
AB  - This paper examines the macroeconomic dynamics of the 2007-09 recession in the United States and the subsequent slow recovery.  Using a dynamic factor model with 200 variables, we reach three main conclusions.  First, although many of the events of the 2007-2009 collapse were unprecedented, their net effect was to produce macro shocks that were larger versions of shocks previously experienced, to which the economy responded in an historically predictable way.  Second, the shocks that produced the recession primarily were associated with financial disruptions and heightened uncertainty, although oil shocks played a role in the initial slowdown and subsequent drag was added by effectively tight conventional monetary policy arising from the zero lower bound.  Third, while the slow nature of the recovery is partly due to the shocks of this recession, most of the slow recovery in employment, and nearly all of the slow recovery in output, is due to a secular slowdown in trend labor force growth.
ER  -