Testing and Quantifying Economic Resilience

Abstract:

We propose a formal testing procedure to examine economic resilience. Our approach applies even when a cross-section of a control group is unavailable and circumvents bias in time-series regressions using data with structural breaks. We provide novel measures of shock absorption and cumulative recovery. Our empirical analysis shows that most advanced economies were not resilient to the Global Financial Crisis, while many were resilient during the COVID-19 pandemic. These results challenge the view that a single set of determinants governs economic resilience, showing instead that factors such as …nancial leverage and labor market regulation are associated with lower resilience, while other determinants matter in a crisis-dependent manner.