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Stock and Watson Disentangling the Channels of the 2007-2009 Recession

Stock and Watson Disentangling the Channels of the 2007-2009 Recession. Research Questions. Beyond severity, how did this recession differ from previous post-war recessions? What specific economic shocks triggered the 2007 recession and what were their quantitative contributions?. Shocks .

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Stock and Watson Disentangling the Channels of the 2007-2009 Recession

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  1. Stock and WatsonDisentangling the Channels of the 2007-2009 Recession

  2. Research Questions • Beyond severity, how did this recession differ from previous post-war recessions? • What specific economic shocks triggered the 2007 recession and what were their quantitative contributions?

  3. Shocks • Oil prices • Monetary policy • Productivity • Uncertainty • Liquidity/Financial risk (credit spreads) • Fiscal policy

  4. Answers • There is little evidence of a new factor associated with the 2007:Q4 recession and its aftermath. Rather, the factors driving the recession are those associated with previous recessions. • The response to “old” factors seems to have been the same post 2007:Q4 as pre 2007:Q4. • The shocks to “old” factors were large, particularly in fall 2008 (i.e., no need to bring in a special “financial crisis” factor).

  5. Answers (2) • Interpretation of 2007-09 recession: Economy was in close succession by a sequence of unusually large shocks, all of which have been experienced before, but not in such magnitude or close succession. • An initial oil shock, followed by the financial crisis, financial market disruptions and prolonged uncertainty due to policy uncertainty.

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