Consumption and the Recession of 1990-1991

Abstract

The paper looks at the recession of 1990-91.It reaches two conclusions: Not all recessions have the same dynamics.Decreases in output which come from other sources than consumption shocks tend to be short lived, and followed by sharp recoveries.Decreases in output which come from consumption shocks, decreases in consumption given income, tend to be longer lasting, and followed by weaker recoveries.In contrast to its predecessors, the recession of 1990-91 was caused primarily by a consumption shock.Thus, conditional on the nature of those shocks, the slow re- covery comes as no surprise.As of the end of 1992, the economy was nearly exactly on the track given by a dynamic forecast based on information up to the first quarter of 1991.

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