Evaluating the Impact of Recession and Government Responses

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There is general agreement that the 2008-2009 recession originated in the United States, and was triggered by the end of an unsustainable expansion of the housing sector and subsequent failures in the over-leveraged financial sector. The effects spread quickly to other developed countries, and then to developing economies. Most governments have launched stimulus packages, which have varied widely in size, timing and nature, but have typically included increased government spending and/or lower taxes (fiscal policy) and easier credit (monetary policy).

This course will help to understand possible mechanisms by which shocks are transmitted from one economy to another, including through trade, remittances, commodity prices, short- and long-run capital flows, travel and tourism, foreign aid, real interest rates and confidence. The relative importance of the different transmission mechanisms varies widely from country to country, which in turn has implications for the appropriate policy response. The course will also discuss government responses and their possible implications for income distribution and poverty.

This course will:

• consider both macro-and micro-level impacts of global recession and government policy responses;
• demonstrate how sector-level effects can be measured using standard input-output, or a social accounting matrix (SAM)-based multiplier analysis;
• show how household-level effects can be measured using household data; and
• discuss how to establish an appropriate counterfactual, which allows one to estimate the effects of a shock or policy.