Animal spirits and the depth of a recession

A couple of my students have poinetd me towards an article by Gary Duncan of the Times earlier on this week. Mr Duncan refers to some recent research by Paul Ormerod of Volterra Consulting which has looked at the history of british recession - measured by how long they lasted and also by the cumulative drop in GDP. Most post-war recessions have been relatively shortlived the worst being the downturn in 1979-82 where real national output declined by over 4 per cent. Ormerod points to the importance of the speed of any descent into recession and the impact on the ‘animal spirits’ of businesses and consumers. The more dramatic the turnaround in macroeconomic fortunes, the deeper the recession is likely to be. And when confidence disappears the traditional tools of macroeconomic stabilisation become less effective.

Here is Gary Duncan’s article (well worth reading) and also a link to Paul Ormerod’s own website which provides some of his most recent research