Recession Panel Francesco Caselli Three Questions Is this - - PowerPoint PPT Presentation

Recession Panel

Francesco Caselli

Three Questions

• Is this recession special?
• If so, why?
• Is the policy response right?

Three Questions

• Is this recession special? (I don’t know)
• If so, why? (I don’t know)
• Is the policy response right? (I don’t know)

Is this recession special?

• A quick look at (US) data

So is it special?

• Since inception: no
• Since summer: yes …

… but too soon to tell?

Explanation for the recession

• End of house-price bubble
• Banks stop lending to consumers and

firms

• Consumption and investment fall
• Employment falls
• Further falls in consumption … etc.

Explanation for the recession

• End of house-price bubble
• Banks stop lending to consumers and

firms

• Consumption and investment fall
• Employment falls
• Further falls in consumption … etc.

Somehow does not feel “enough”

The role of fear

• Massive wave of pessimism and

uncertainty even for non-credit constrained agents

• Self-fulfilling element could explain “the

kink”

• Confidence crisis fuelled by:

– Visibility of financial sector – Over-the-top statements by gurus and policy makers

Policy response

• Massive monetary stimulus, fiscal

stimulus, and policies to restore financial- sector stability

• What about confidence?

– Articulate “animal spirits” view – Accept the political risk of sounding optimistic

1

Tim Besley LSE and Bank of England February 2009

The Global Economic Crisis: Meeting the Challenge

2

Synchronised Downturn: Manufacturing PMIs

25 30 35 40 45 50 55 60 65 2005 2006 2007 2008 2009

Euro area US China UK Japan India

Index

Sep 08

Sources: Bloomberg, CIPs/Markit, Institute for Supply Management and Thompson Datastream Data are headline purchasing manager indices. A figure over 50 indicates rising output compared with the previous month, and a figure below 50 indicates falling output.

3

Synchronised Downturn: Industrial Production

Sources: Bank Calculations and Thompson Datastream N.B: Data are weighted according to PPP weights, data to November 2008

• 10
• 5

5 10 15 2001 2002 2003 2004 2005 2006 2007 2008 Emerging Developed World Percentage Change on a year earlier, three month average

Sep 08

4

Synchronised Downturn: Industrial Production

Sources: Bank Calculations and Thompson Datastream Data to December

• 20
• 15
• 10
• 5

5 10 2005 2006 2007 2008 US Japan Euro Area UK Percentage Change on a year earlier, three month average

Sep 08

5

1 2 3 4 5 6 7 8 2005 2006 2007 2008 2009

US Japan Euro Area Australia Canada Sweeden China UK Percentage Points

International Loosening of Monetary Policy

Sources: National Central Banks and Thompson Datastream

6

International Fiscal Stimuli

Sources: National Central Banks and Thompson Datastream

2 4 6 8 10 12 14 16 Brazil United Kingdom Russia India France Canada Japan Germany Italy United States China % of GDP

Source: The Economist

7

The Global Economic Crisis: Meeting the Challenge

The labour market implications of the credit crunch

Christopher Pissarides

What happens to labour in recession?

• Job destruction increases, unemployment

inflow increases

• Unemployment goes up
• Job creation goes down, prolongs

unemployment spells

• Long-term unemployment builds up,

introduces persistence

• Output picks up but unemployment slower

to react

Is this recession conforming?

• This scenario was most emphatic in the

early 1980s recession

• There are some signs that this recession

is following a similar pattern but at a much lower scale

• From early 2008 redundancies are up

sharply but unemployment picking up slowly

• Output impact seems minimal

Speculative views

• Despite these early signs, this recession

will not hit the labour market badly because of the reforms of 1980s and 1990s

• Decline of unions, reform of

unemployment insurance, more strict supervision of benefit rules

• Will bring wage moderation, will not allow

big increase in long-term unemployment

UK umemployment rate

2 4 6 8 10 12 1 9 7 1 1 9 7 3 1 9 7 5 1 9 7 7 1 9 7 9 1 9 8 1 1 9 8 3 1 9 8 5 1 9 8 7 1 9 8 9 1 9 9 1 1 9 9 3 1 9 9 5 1 9 9 7 1 9 9 9 2 1 2 3 2 5 2 7 per cent

1979 1986 1993 2004

Much less impact on unemployment

redundancy rates

2 4 6 8 10 12 14 16 A p r

• J

u n 1 9 9 5 J a n

• M

a r 1 9 9 6 O c t

• D

e c 1 9 9 6 J u l

• S

e p 1 9 9 7 A p r

• J

u n 1 9 9 8 J a n

• M

a r 1 9 9 9 O c t

• D

e c 1 9 9 9 J u l

• S

e p 2 A p r

• J

u n 2 1 J a n

• M

a r 2 2 O c t

• D

e c 2 2 J u l

• S

e p 2 3 A p r

• J

u n 2 4 J a n

• M

a r 2 5 O c t

• D

e c 2 5 J u l

• S

e p 2 6 A p r

• J

u n 2 7 J a n

• M

a r 2 8 O c t

• D

e c 2 8 per thousand of previous quarter men women

Despite sharp rise in redundancies

Unemployment rates

2 4 6 8 10 12 14 A p r

• J

u n 1 9 9 2 A p r

• J

u n 1 9 9 3 A p r

• J

u n 1 9 9 4 A p r

• J

u n 1 9 9 5 A p r

• J

u n 1 9 9 6 A p r

• J

u n 1 9 9 7 A p r

• J

u n 1 9 9 8 A p r

• J

u n 1 9 9 9 A p r

• J

u n 2 A p r

• J

u n 2 1 A p r

• J

u n 2 2 A p r

• J

u n 2 3 A p r

• J

u n 2 4 A p r

• J

u n 2 5 A p r

• J

u n 2 6 A p r

• J

u n 2 7 A p r

• J

u n 2 8 per cent men women

Small unemployment response whichever way you look at it

female employment rate

46.0 47.0 48.0 49.0 50.0 51.0 52.0 53.0 54.0 55.0 Apr-Jun 1992 Jan-Mar 1993 Oct-Dec 1993 Jul-Sep 1994 Apr-Jun 1995 Jan-Mar 1996 Oct-Dec 1996 Jul-Sep 1997 Apr-Jun 1998 Jan-Mar 1999 Oct-Dec 1999 Jul-Sep 2000 Apr-Jun 2001 Jan-Mar 2002 Oct-Dec 2002 Jul-Sep 2003 Apr-Jun 2004 Oct-Dec 2004 Jul-Sep 2005 Apr-Jun 2006 Jan-Mar 2007 Oct-Dec 2007 Jul-Sep 2008 per cent

Employment rates falling but only marginally

male employment rate

60 61 62 63 64 65 66 67 68 Apr-Jun 1992 Jan-Mar 1993 Oct-Dec 1993 Jul-Sep 1994 Apr-Jun 1995 Jan-Mar 1996 Oct-Dec 1996 Jul-Sep 1997 Apr-Jun 1998 Jan-Mar 1999 Oct-Dec 1999 Jul-Sep 2000 Apr-Jun 2001 Jan-Mar 2002 Oct-Dec 2002 Jul-Sep 2003 Apr-Jun 2004 Oct-Dec 2004 Jul-Sep 2005 Apr-Jun 2006 Jan-Mar 2007 Oct-Dec 2007 Jul-Sep 2008 per cent

vacancy rates

1.5 1.7 1.9 2.1 2.3 2.5 2.7 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 % of employment

Things might get worse because hiring will fall

the Beveridge curve

2001 2002 2003 2004 2005 2006 2007 2008 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 4.5 5 5.5 6 6.5 unemployment vacancies

The Beveridge curve is shifting out a little probably due to redundancies (compare 2005-06 with 2007-08)

long-term unemployment and unemployment rate (1992-2008, men and women separately)

2006 2007 2008 y = 4.4722x - 0.8701 R2 = 0.8368 0.0 10.0 20.0 30.0 40.0 50.0 60.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 unemployment % over 12 months

Relation between unemployment rate and long-term unemployment tight but some signs that 2008 is different

long term (over 12 months) unemployment

0.0 10.0 20.0 30.0 40.0 50.0 60.0 Apr-Jun 1992 Jan-Mar 1993 Oct-Dec 1993 Jul-Sep 1994 Apr-Jun 1995 Jan-Mar 1996 Oct-Dec 1996 Jul-Sep 1997 Apr-Jun 1998 Jan-Mar 1999 Oct-Dec 1999 Jul-Sep 2000 Apr-Jun 2001 Jan-Mar 2002 Oct-Dec 2002 Jul-Sep 2003 Apr-Jun 2004 Jan-Mar 2005 Oct-Dec 2005 Jul-Sep 2006 Apr-Jun 2007 Jan-Mar 2008 Oct-Dec 2008 % of total unemployment men women

Long-term unemployment not rising (may pick up in 2009 a little because of the rise in u in 2008)

Change in unemployment rate y-o-y, Dec 2008

• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

• !

"#$ % &'( #) * $+ ,

• $

! & & #

UK not doing too badly, about the same as eurozone, better than US

Conclusion?

• It’s a recession
• But not a bad one for labour
• Internationally UK not worse off than

comparable countries

• Eurozone still to show worst because of

rigidities, slow response, slow recovery

• UK should recover faster