Bordo versus Reinhart and Rogoff

Michael Bordo presented in the WSJ an interesting alternative to the Reinhart-Rogoff "this time is different" meme. The fatalist view of the Reinhart-Rogoff is that financial crises always take a long time cure and result in a slow recovery. The time frame for a recovery may be 7-10 years. Bordo discusses his research with Joe Haubrich of the Cleveland Fed and provides an alternative view. They find that generally deep steep recessions are followed by strong fast recoveries. This is consistent with the Friedman plucking of a string story of recessions. They find that financial crises actually show stronger recoveries than non financial recessions.

The exception is the current recovery. Their results focus on the US and try and measure the growth rate of the recovery and not the return to the long-term trend like Reinhart and Rogoff. Their work also finds that the current recovery is unusual and does not follow the pattern of other past financial crises. They suggest that this may have to do with the sharp decline in residential investment; nevertheless, they would argue that we are not destined to poor growth.