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The Aftermath of Financial Crises Carmen Reinhart and Kenneth Roggoff
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Austria, Hungary 2008 UK, Iceland, Ireland 2007 Malaysia, Thailand Korea, Indonesia, Hong Kong Philippines, 1997 Japan 1992 Finland, Sweden 1991 Colombia, 1998 Norway, 1987 Spain 1977 US 1929 Norway 1899
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Asset market collapses are deep and protracted Real housing price declines average 35% stretched over six years Equity prices collapse an average of 55% over 3.5 years. Unemployment rate increases an average of 7% lasting 4 years. Output falls from peak to trough by 9% over two years. Real value of government debt explodes, rising an average of 86% in post WWII period.
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At the national level Okun’s law gives a rough 3 to 1 relation between real GDP growth and changes in unemployment rates. Every 3% increase in real GDP lowers the unemployment rate by 1%. Current national unemployment rate=9.7% in February 2010 Full employment unemployment rate=5-6% Need 9-12% growth in real GDP to get to full employment.
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