1. CLASE 11B -Curso UC– Segundo semestre 2016
Economic Cycles, Expansions, Recessions and Depressions: Chile, US, UK, Greece
Andres Solimano
CLASE 11B -Curso UC– Segundo semestre 2016
Noviembre 3, 2016.

2. ECONOMIC CYCLES: EXPANSIONS, RECESSIONS AND DEPRESSIONS
Definition of cycles: (I) from peak to peak.
(II) From trough to trough
Phases:
Expansion: from trough to peak.
Contraction: peak to trough
Recession: negative growth for at least two consecutive quarters and unemployment rates approaching 10 percent.
Depression: a deeper and/or more protracted recession. Output contraction over 10 percent and unemployment rates over 20 percent.
Growth cycles and output cycles.
Acceleration and slowdown (growth cycles)

7. The Chilean Case

8. Main Internal and External Economic Shocks in Chile (1970-2015)
(a) Nationalization policies, redistribution and external political destabilization ( , Allende Period) .
(b) Shock treatment to reduce inflation in the mid 1970s (Pinochet period).
© Rapid financial liberalization with fixed exchange rate in the late 1970s and early 1980s (neoliberal policies).
(d) Effects of Asian and Russian Crises in
( e) Impact of the great financial crises in
(f ) Fall in copper prices and slowdown in emerging economies since

9. Growth and Investment Cycles in Chile (1960-2015)

10. Main recessions/depressions.
Recession of GDP and investment fall. Depression of 1975 GDP drops by -12 percent, investment declines by 25 percent and unemployment rises to near 20 percent. Financial crises and the depression of :GDP falls by -16 percent, investment collapses by 35 percent and unemployment rises to over 25 percent. Recession of 1999: GDP declines by -1.2 percent and investment falls by 15 percent. Recession of 2009: GDP declines by -1.5 percent, investment is cut by -10 percent and unemployment increases to about 10 percent.

11. Empirical regularities of cycles in Chile (1970-2015):
(a) GDP and investment are correlated across the cycle.
The volatility of investment is greater than the volatility of output. The amplitude of changes in investment is larger than the amplitude of changes in output.
Duration of expansions:
(5 years)
(15 years)
(9 years)
(7 years)
(d) Duration of depressions:
1975 ( one year)
(2 years)
Duration of recessions:
1973
1999
2009

12. Policy framework, financial crises and the severity of cycles
The 1975 and crises (with a financial component) were more severe than the recessions of 1999 and 2009.
All the recessions and depressions also came with a decline in the international price of copper.
The setting up of a copper stabilization fund (1987), a fiscal rule (2001) and an economic and social stabilization fund (2006) helped to reduce the severity of economic cycles after large shocks took place.
Having flexible exchange rates since the late 1990 also helped to reduce impact on economic activity although shield is not total.
Since 2014 we are leaving in a growth slowdown (lower copper prices and internal reforms).

13. The Great Depression of the 1930s, the Great Recession of and Secular Stagnation of (?)

26. SECULAR STAGNATION IN THE US AND EUROPE