Friday, January 11, 2008

The "R" Word

I suspect that if you teach much macroeconomics in your course, you spend some time on business cycles: the pattern of expansion and recession that mark economic history. There are some good recent posts on The Wall Street Journal blog, Real Time Economics. Both of them have to do with what some may consider technical minutiae, but both are interesting background for teachers of economics. I bring this up because, too often, we and our students hear the media define recessions as "two or more consecutive quarters of declining gross domestic product (GDP)." The reality, while tied to GDP, is not that simple. And while it may provide a convenient rule of thumb, it is important for students to understand why GDP is not the whole story.

The first of the two posts I would recommend is this one which links to Fed Chairman Bernanke's speech from yesterday, as well as a question put to him regarding calling recessions. As the post points out, Mr. Bernanke was a member of the National Bureau of Economic Research (NBER) which decides whether or not a downturn qualifies as a recession.

The second post features a brief video clip about recession, but more importantly provides a link to the NPR radio program On Point that featured a discussion about GDP and recession. The broadcast is about 45 minutes long but provides some good give and take regarding what goes into dating recessions, as well as the depth and length of downturn and how it may or may not show up in some of the data series.

I know many of you are hip deep in exams and semester grades. But if you get a chance, give these posts some time. I think you will find them as interesting as I did. (One caveat: the posts were much more enlightening than some of the comments.)

2 comments:

juliechismar said...

Thank you Tim. We are discussing the current economy in class and beginning to prepare for the Fed challenge competition. To say this is an interesting year is an understatement. It seems as everyone EXCEPT the Fed is using the "R" word--even Martin Feldstein. I've pointed out NBER's procedure for determining recessions. The textbook definition is what is heard most often among the pundits. Thank you for these resources and Happy New Year...One that does NOT end in a "R".

juliechismar said...

Just read a good article at Economist.com on the "R" index. The index keeps track of how many times a month the "R" word is used in the Washington Post and NYTimes.
Interesting. Here's the link:
http://www.economist.com/opinion/displaystory.cfm?story_id=10498499