Proceedings of the New York State Economics Association


Determining the Causes of the Recent U.S. Recessions and the Economic Slowdown in China

Suprabha Baniya and Florence P. Shu

vol. 3, September 2010, p. 4-9


Variables suspected as having possibly triggered the recent U.S. recession that begins from December, 2007 to have reached its trough in June, 2010 are mostly financial (NBER, 2010). These variables are mostly suspects by the short-term account. For instance, it is reported that the breakdowns in key credit markets -- such as bond and equity finance markets (Duca & Luttrell, 2010a: Duca, DiMarino, and Renier, 2010b) first occurred. In this thinking, heavy homebuilding finance and housing-backed consumer borrowing defaults trailed the recovery from the 2001 recession (Duca and Luttrell, 2010a; Duca, DiMarino, and Renier, 2010b) were cited by the most as dual major drivers behind the recent U.S. recession. This paper examines the causes of the recent U.S. recession by investigating the relationships between U.S. public debt-to-GDP, U.S. real estate mortgage delinquency, U.S. income inequality, and U.S. GDP level. Our findings based on annual data between 1987 to 2009 shows that to U.S. GDP performance, U.S. public debt-to-GDP shows statistically insignificant indirect association whereas U.S. income inequality and real estate mortgage delinquency proxies show statistically significant direct association in a multivariate linear regression analysis. Co-integration tests upset these finding results. To U.S. GDP in difference at the first order, all the three cause variables, in respective difference at the first order, shows indirect association. The difference of the U.S. public debt-to-GDP at the first order shows statistically significant indirect association, whereas the difference of the annual income inequality and the annual real estate mortgage delinquency proxies at the first order show statistically insignificant association. Despite short-term perspectives make blame on financial accounts, annual data between 1987 and 2009, suggests that U.S. public debt-to-GDP growth is on the other hand the major statistically significant factor of the recent U.S. recession.


suggested citation:

Suprabha Baniya and Florence P. Shu. "Determining the Causes of the Recent U.S. Recessions and the Economic Slowdown in China." Proceedings of the New York State Economics Association. vol. 3, September 2010, p. 4-9

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