The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs
The deep recession in many of the emerging market transition economies of Europe and Central Asia caused by the COVID-19 crisis has raised fears of long-term damage to potential output through scarring and hysteresis. These economies were also hit...
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/321251622554430953/The-Scarring-and-Hysteresis-Effects-of-Steep-Recessions-and-the-Implications-for-Fiscal-Policy-in-ECA-Transition-EMDEs http://hdl.handle.net/10986/35644 |
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okr-10986-356442021-06-03T05:10:49Z The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs Brownbridge, Martin Canagarajah, Sudharshan FISCAL POLICY CORONAVIRUS COVID-19 PANDEMIC RESPONSE ECONOMIC RECESSION EMERGING MARKET ECONOMIES GLOBAL FINANCIAL CRISIS HYSTERESIS COUNTERCYCLICAL POLICY PUBLIC DEBT The deep recession in many of the emerging market transition economies of Europe and Central Asia caused by the COVID-19 crisis has raised fears of long-term damage to potential output through scarring and hysteresis. These economies were also hit hard by the great recession caused by the global financial crisis. This paper provides empirical estimates of the impact of the great recession on the subsequent medium-term level of real gross domestic product in a sample of 65 middle-income countries. It finds evidence of a significant hysteresis parameter in these countries. The paper also examines how the combination of a hysteresis parameter and a positive fiscal multiplier can mean that a countercyclical fiscal expansion that successfully mitigates the output loss in a recession need not worsen public debt levels in the medium to long term because of its positive impact on potential output and thus the tax base. 2021-06-02T15:25:36Z 2021-06-02T15:25:36Z 2021-06 Working Paper http://documents.worldbank.org/curated/en/321251622554430953/The-Scarring-and-Hysteresis-Effects-of-Steep-Recessions-and-the-Implications-for-Fiscal-Policy-in-ECA-Transition-EMDEs http://hdl.handle.net/10986/35644 English Policy Research Working Paper;No. 9682 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Europe and Central Asia Central Asia Eastern Europe Europe and Central Asia |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
FISCAL POLICY CORONAVIRUS COVID-19 PANDEMIC RESPONSE ECONOMIC RECESSION EMERGING MARKET ECONOMIES GLOBAL FINANCIAL CRISIS HYSTERESIS COUNTERCYCLICAL POLICY PUBLIC DEBT |
| spellingShingle |
FISCAL POLICY CORONAVIRUS COVID-19 PANDEMIC RESPONSE ECONOMIC RECESSION EMERGING MARKET ECONOMIES GLOBAL FINANCIAL CRISIS HYSTERESIS COUNTERCYCLICAL POLICY PUBLIC DEBT Brownbridge, Martin Canagarajah, Sudharshan The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs |
| geographic_facet |
Europe and Central Asia Central Asia Eastern Europe Europe and Central Asia |
| relation |
Policy Research Working Paper;No. 9682 |
| description |
The deep recession in many of the
emerging market transition economies of Europe and Central
Asia caused by the COVID-19 crisis has raised fears of
long-term damage to potential output through scarring and
hysteresis. These economies were also hit hard by the great
recession caused by the global financial crisis. This paper
provides empirical estimates of the impact of the great
recession on the subsequent medium-term level of real gross
domestic product in a sample of 65 middle-income countries.
It finds evidence of a significant hysteresis parameter in
these countries. The paper also examines how the combination
of a hysteresis parameter and a positive fiscal multiplier
can mean that a countercyclical fiscal expansion that
successfully mitigates the output loss in a recession need
not worsen public debt levels in the medium to long term
because of its positive impact on potential output and thus
the tax base. |
| format |
Working Paper |
| author |
Brownbridge, Martin Canagarajah, Sudharshan |
| author_facet |
Brownbridge, Martin Canagarajah, Sudharshan |
| author_sort |
Brownbridge, Martin |
| title |
The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs |
| title_short |
The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs |
| title_full |
The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs |
| title_fullStr |
The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs |
| title_full_unstemmed |
The Scarring and Hysteresis Effects of Steep Recessions and the Implications for Fiscal Policy in ECA Transition EMDEs |
| title_sort |
scarring and hysteresis effects of steep recessions and the implications for fiscal policy in eca transition emdes |
| publisher |
World Bank, Washington, DC |
| publishDate |
2021 |
| url |
http://documents.worldbank.org/curated/en/321251622554430953/The-Scarring-and-Hysteresis-Effects-of-Steep-Recessions-and-the-Implications-for-Fiscal-Policy-in-ECA-Transition-EMDEs http://hdl.handle.net/10986/35644 |
| _version_ |
1764483484507701248 |