Queen's Policy Engagement

What can we learn from historical recessions and depressions?

While the Covid-19 recession has some unique characteristics, research on past experiences of economic downturns offers valuable lessons on how long recovery takes and what policies might accelerate that process.

What can we learn from historical recessions and depressions?

The UK economy is in a recession because of Covid-19. Two characteristics make this recession unique. First, nearly every economy across the globe is experiencing it simultaneously. Second, the Covid-19 recession is self-induced – economies have in effect been put into a temporary coma to deal with the pandemic.

Despite today’s unique characteristics, past recessions can teach us something about what to expect in terms of how long it takes to exit from a recession and what, if any, policies might accelerate that exit. Using newly created databases of long-run macroeconomic statistics, recent economic research has investigated these issues.

What does evidence from economic research tell us?

  • Across advanced economies over the past 150 years, the average length of a recession was one and a half years. The average fall in real GDP per capita was 2.5% per annum.
  • Recessions that are preceded by or associated with financial crises and credit booms are much more damaging to the economy than recessions that are not.
  • Monetary and fiscal stimulus have an important role to play in exit strategies, but care needs to be taken that the stimulus is not withdrawn too early.
  • The ability of governments to address a recession is limited if a country enters a recession with high levels of public debt. In addition, large public debt that emerges during recessions has acted as a drag on long-run economic growth.
  • Productivity, which had slowed dramatically in the UK and elsewhere in the decade prior to the Covid-19 outbreak, is the key to economic growth in the short and long run.

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Article originally appeared on the Economics Observatory Coronavirus and the Economy website.


The featured image has been used courtesy of a Creative Commons license. 

Professor John Turner
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John Turner is a Professor of Finance and Financial History at Queen’s University Belfast since 2005. His research is focused on the long-run evolution and development of banking, banking crises, bubbles, and financial markets. He is the author of Banking in Crisis, published by Cambridge University Press. Banking in Crisis won the 2015 Wadsworth Prize. He is currently an editor of the Economic History Review.

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