Publication

The slow recovery following the 2008/2009 recession has led to renewed interest in the question whether deep recessions lower real GDP permanently or whether we can expect a rebound to earlier trend levels. The authors find that positive and negative shocks including large recessionary shocks have permanent effects on output. Therefore, a rebound of GDP to its pre-crisis trend level is unlikely. Current output gap estimates based on deterministic trends are likely to be too negative and inflation forecasts based on these are likely to be too low.