A1272
Title: The speed of state-level recoveries
Authors: Irina Panovska - University of Texas at Dallas (United States) [presenting]
Luiggi Donayre - University of Minnesota - Duluth (United States)
Abstract: The aim is to estimate a Markov-switching model, augmented with a bounce-back effect, and to study the speed with which state-level economic activity recovers following a recession. Using growth rates for U.S. state coincident index data from 1979Q2 to 2023Q1, the results evidence significant differences across growth rates of economic activity within business cycle phases. Moreover, the timing of recessions is only sometimes synchronized with U.S. national recessions. There is also wide heterogeneity in the speed of recoveries following a recession. At the aggregate level, the bounce-back parameter 0.32 suggests moderately quick recoveries. At the state level, estimates of the bounce-back parameter range from 0.01 to 5.07 times that at the aggregate level, evidencing large differences in how quickly economic activity returns to pre-recession levels. Southern states and much of the Rust Belt exhibit slow recoveries, suggesting more L-shaped recessions. Meanwhile, some mountain states and oil-producing states exhibit faster, U-shaped recoveries. These differences may have important policy implications. Because monetary and fiscal policies are designed to smooth aggregate business cycle fluctuations, the effects of such policies vary widely across states and regions.
