In my third Vox EU column, written with Joshua Aizenman, Hiro Ito, Donghyun Park, and Gazi Salah Uddin, you will learn about how political stability and trade restrictions shape recessions and recoveries:
For a cross-section of 101 countries observed between 1990 and 2022, we identify 419 recession episodes. Then, we explore the drivers that shape these recessions and recoveries. Finally, we provide empirical evidence suggesting that deeper recessions are followed by stronger recoveries, as predicted by Milton Friedman’s plucking model. However, higher political instability and more trade restrictions mitigate this evidence. The plucking model is less relevant in developing countries that are experiencing political instability and are less open to trade.
You can find the NBER version, the abstract, the keywords and the online appendix in an older post:
