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Economic shocks and growth: Spatio‐temporal perspectives on E urope's economies in a time of crisis
Author(s) -
Doran Justin,
Fingleton Bernard
Publication year - 2014
Publication title -
papers in regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.937
H-Index - 64
eISSN - 1435-5957
pISSN - 1056-8190
DOI - 10.1111/pirs.12048
Subject(s) - economics , counterfactual thinking , shock (circulatory) , recession , impulse response , mainstream , macroeconomics , monetary economics , econometrics , medicine , mathematical analysis , philosophy , mathematics , theology , epistemology
The response by regional and national economies to exogenous impulses has a well‐established literature in both spatial econometrics and in mainstream econometrics and is of considerable importance given the post‐2007 economic crisis, which is characterized by a period of severe global instability resulting from unprecedented economic shocks. This paper focuses on dynamic counterfactual predictions and impulse‐response functions derived from appropriate econometric models. These provide insight regarding the question of whether responses to economic shocks are transitory or whether they have a permanent effect. Analysis shows that output shocks have had permanent effects on productivity so that economies have tended not to return to the pre‐shock path but rather adjust to new levels. This suggests that the current recession will be embodied permanently within the memory of some of E urope's leading economies as a hysteretic effect.