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

To secure southern border, US must lead international effort to stabilize Central America
image The Ryan pro-work, anti-poverty plan: Thomas Aquinas 1, Ayn Rand 0
image Does SNAP support work? Yes and no
image Obama Democrats lose their big bet on health exchanges
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Monday, July 21, 2014 | 9:15 a.m. – 11:30 a.m.
Closing the gaps in health outcomes: Alternative paths forward

Please join us for a broader exploration of targeted interventions that provide real promise for reducing health disparities, limiting or delaying the onset of chronic health conditions, and improving the performance of the US health care system.

Monday, July 21, 2014 | 4:00 p.m. – 5:30 p.m.
Comprehending comprehensive universities

Join us for a panel discussion that seeks to comprehend the comprehensives and to determine the role these schools play in the nation’s college completion agenda.

Tuesday, July 22, 2014 | 8:50 a.m. – 12:00 p.m.
Who governs the Internet? A conversation on securing the multistakeholder process

Please join AEI’s Center for Internet, Communications, and Technology Policy for a conference to address key steps we can take, as members of the global community, to maintain a free Internet.

Thursday, July 24, 2014 | 9:00 a.m. – 10:00 a.m.
Expanding opportunity in America: A conversation with House Budget Committee Chairman Paul Ryan

Please join us as House Budget Committee Chairman Paul Ryan (R-WI) unveils a new set of policy reforms aimed at reducing poverty and increasing upward mobility throughout America.

Thursday, July 24, 2014 | 6:00 p.m. – 7:15 p.m.
Is it time to end the Export-Import Bank?

We welcome you to join us at AEI as POLITICO’s Ben White moderates a lively debate between Tim Carney, one of the bank’s fiercest critics, and Tony Fratto, one of the agency’s staunchest defenders.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.