The Stock Market Crash Really Did Cause the Great Recession
NBER Working Paper No. 19391
This paper studies the connection between the stock market and the unemployment rate. I establish three facts. First, the log of the real value of the S&P 500 and the log of a logistic transformation of the unemployment rate are non-stationary cointegrated series. Second, the stock market Granger causes the unemployment rate. Third, the connection between changes in the real value of the stock market and changes in the unemployment rate has remained structurally stable over seventy years. My results establish that the fall in the stock market in the autumn of 2008 provides a plausible causal explanation for the magnitude of the Great Recession.
This paper was revised on August 4, 2014
Document Object Identifier (DOI): 10.3386/w19391
Published: The Stock Market Crash Really Did Cause the Great Recession† Roger E. A. Farmer Oxford Bulletin of Economics and Statistics Volume 77, Issue 5, pages 617–633, October 2015 citation courtesy of
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