When Will the Recession Be Over?
Tumbling Dice

Recessions end, and this one will, too. But the sad truth is, the probability of leaving a recession once you are in one is about the same each month--about 8 percent. It is as if God rolls two dice each month, and the recession ends when he rolls a 10.

We are without question in a deep recession. According to a model developed by one of us that draws on past recession experience and has proved quite useful, the chance that we will be in recession in March is 92 percent, in April 85 percent, and so on.

Many of the key indicators look similar to what we've seen before. The decline in employment is above average for past recessions, but smaller than in the downturns of 1960-61 and 1981-82. Industrial production and manufacturing and trade sales have also slowed more than average, but not nearly as much as during the 1973-75 recession, when they declined by 14 percent. And the drop in personal income has been below the average of previous recessions, and even trended up in the last quarter of 2008. So the history books give us cause for hope.

The good news is that the odds of this recession lasting into the fourth quarter of 2009 are below 50 percent. But the dice will be thrown each month, and we could get lucky and be out earlier--or unlucky and be stuck in the doldrums.

Marcelle Chauvet is an associate professor of economics at the University of California, Riverside. Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Kevin A.
Hassett

What's new on AEI

Holder will regret his refusal to obey the Constitution
image 'Flood Wall Street' climate protesters take aim at their corporate allies
image 3 opportunities for better US-India defense ties
image Is Nicolás Maduro Latin America's new man at the United Nations?
AEI on Facebook
Events Calendar
  • 29
    MON
  • 30
    TUE
  • 01
    WED
  • 02
    THU
  • 03
    FRI
Thursday, October 02, 2014 | 9:00 a.m. – 10:30 a.m.
Campbell Brown talks teacher tenure

We welcome you to join us as Brown shares her perspective on the role of the courts in seeking educational justice and advocating for continued reform.

Event Registration is Closed
Friday, October 03, 2014 | 12:00 p.m. – 1:00 p.m.
Harnessing the power of markets to tackle global poverty: A conversation with Jacqueline Novogratz

AEI welcomes you to this Philanthropic Freedom Project event, in which Novogratz will describe her work investing in early-stage enterprises, what she has learned at the helm of Acumen, and the role entrepreneurship can play in the fight against global poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.