Economic Concepts And Schools Codexery

Recession

A broad decline in economic activity with no single official definition.

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The International Monetary Fund states there is no official definition of a recession.[1] A business cycle contraction characterized by a broad decline in economic activity, often initiated by a widespread drop in spending, is what constitutes a recession.[2] The Business Cycle Dating Committee of the National Bureau of Economic Research is the recognized authority for determining U.S. recession dates, using the definition "a significant decline in economic activity spread across the economy, lasting more than a few months".[3]

Quick Facts

Definition variants
Multiple (e.g., NBER, EU, UK, Canada, OECD)
Common trigger
Adverse demand shock
Typical duration
More than a few months
Key indicators
  • GDP
  • real income
  • employment
  • industrial production
  • wholesale-retail sales
Response policy
Expansionary macroeconomic policies

Facts from the source article.

Key facts and history

Recessions can be triggered by events such as a financial crisis, external trade shock, or a pandemic.[1] The Organisation for Economic Co-operation and Development defines a recession as a period of at least two years with a cumulative output gap of at least 2% of GDP.[4] A severe recession with GDP down by 10% or lasting three to four years is called an economic depression.[5] Koo argued that massive fiscal stimulus offset the decline and enabled Japan to maintain its GDP level.[6]

The paradox of thrift describes how too many consumers saving simultaneously can cause or deepen a recession.[7] Two consecutive quarters of negative GDP growth is the operational definition of a recession in both the United Kingdom and Canada.[8] After 1998, Japanese corporations shifted from being net borrowers to becoming net savers during that balance sheet recession.[6] A liquidity trap is a situation where near-zero interest rates fail to stimulate the economy; this ineffectiveness can occur when individuals and corporations focus on saving or paying down debt rather than spending.[9][10]

What the cited sources add

Joseph Brusuelas introduced the RSM US Recession Monitor, comprised of 21 variables in five areas of the economy, to gauge recession risk.[11] Brusuelas forecast a 55% probability of a recession over the next 12 months after significant disruption to trade policy and financial markets.[11] The RSM monitor showed moderate to high recession risk in the financial, housing, and sentiment areas of the economy.[11] The Conference Board's Leading Economic Index uses a "3Ds rule" signaling an impending recession when the six-month diffusion index is at or below 50 and the LEI's six-month growth rate falls below −4.3%.[12]

References

  1. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: Claessens, "Recession: When Bad Times Prevail - Back to Basics", International Monetary Fund, 2011 (original not read by us) en.wikipedia.org
  2. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: ; "Encarta World English Dictionary [North American Edition]", Microsoft Corporation, 2007 (original not read by us) en.wikipedia.org
  3. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: "Business Cycle Expansions and Contractions", National Bureau of Economic Research; Claessens, "Recession: When Bad Times Prevail - Back to Basics", International Monetary Fund, 2011; Anstey, "'Technical Recession' Sets Up Washington War of the Words", Bloomberg News, 28 July 2022; Cox, "The economy may look like it's in recession, but we still don't know for sure", CNBC, 28 July 2022; Jacobsen, "What exactly is a recession? Sorting out a confusing topic", PolitiFact, 26 July 2022; Loe, "Yes, there is an official definition of a recession", K en.wikipedia.org
  4. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: "oecd-ilibrary.org", Organisation for Economic Co-operation and Development, 2008 (original not read by us) en.wikipedia.org
  5. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: Saul Eslake, "What is the difference between a recession and a depression?", Nov 2008; Kaur, "Global Recession and Its Impact on Foreign Trade in India", International Journal of Afro-Asian Studies, Spring 2012, p. 62 (original not read by us) en.wikipedia.org
  6. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: Koo, "The Holy Grail of Macroeconomics-Lessons from Japan's Great Recession", John Wiley & Sons (Asia) Pte. Ltd., 2009; Koo, "The world in balance sheet recession: causes, cure, and politics", Real-World Economics Review, 12 December 2011, p. 19; White, "Presentation by Richard Koo – The Age of Balance Sheet Recessions", Business Insider, 14 April 2010 (we also read that source) en.wikipedia.org
  7. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: Lipsey, "First Principles of Economics", Oxford University Press, 1992, p. 294 (original not read by us) en.wikipedia.org
  8. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: "Business Cycle Dating Committee Announcement January 7, 2008", www.nber.org, 2008-01-07; "FAQ EABCN", eabcn.org; "The CEPR and NBER Approaches", eabcn.org (original not read by us) en.wikipedia.org
  9. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: Eggertsson, "The New Palgrave Dictionary of Economics", Palgrave Macmillan UK, 2018, p. 7929–7936 (original not read by us) en.wikipedia.org
  10. Wikipedia, "Recession" (CC BY-SA 4.0), which cites: Correia, "Unconventional Fiscal Policy at the Zero Bound: Working Paper 698", Federal Reserve Bank of Minneapolis, August 2012, p. 1 (original not read by us) en.wikipedia.org
  11. Joseph Brusuelas, "Introducing the RSM US Recession Monitor", 28 April 2025. facts only, no text reused. realeconomy.rsmus.com
  12. "The Conference Board Leading Economic Index® (LEI) for the U.S.". facts only, no text reused. conference-board.org

Each numbered sentence above was checked against the source it cites before publication. Sentences citing Wikipedia adapt text from the English Wikipedia article Recession (contributors), used under CC BY-SA 4.0; this entry is available under the same licence. Other sources were used for facts only; no text or images are copied from them.

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EconomicsFiscal policy

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Sources

Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.

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