Managing the Great Recession

In “Which countries managed the Great Recession better?” Antonio Fatas writes:

As we compare countries’ performance since the beginning of the global financial crisis we try to look for patterns that explain differences in behavior and lessons on how to handle the next crisis. When doing that comparison we sometimes forget that looking at GDP growth does not always give us all the information we need to understand cross-country variation in performance. This variation can be due to demographic, labor market, productivity factors and while these three might be correlated over time, this is not always the case.

And he compares a sample of countries according to their RGDP in 2013 relative to 2007, doing the same for RGDP per working age and RGDP per worker.

Interestingly, Australia comes at the top in the first two criteria and near the top in the third. Israel is not included in the sample and Israel shares with Australia the fact that both countries did not allow NGDP (nominal spending) to crash in 2008-09.

Applying the same criteria to Israel, we find that the country did even slightly better than Australia in all three criteria.

Given that Australia and Israel were about the only countries that kept NGDP close to trend during the crisis, this result should not be just a coincidence!


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