Archive for the ‘Articles’ Category

Abstract
Predicting a recovery from a crisis is always difficult, but it is particularly so with the 2008 crisis in the United States. How could a small segment of the financial markets known as subprime credit bring down the world’s largest economy into the worst recession since WWII? The resulting conflicts in policy responses are so severe that the short-term objective (recovery) clashes with the longer-term and more structural goals (governance, regulations, technology). This and the enormous uncertainties caused by it add to the difficulties to predict the pace of recovery. While the economic turnaround depends on consumers’ decision to spend and business’ decision to invest and hire, in an uncertain situation such decisions can only be taken as a result of market players’ perceptions of opportunity that depend on their emotional state and confidence. When the latter produces spontaneous urge to action (‘animal spirits’), the recovery process accelerates. Thus, the appropriate model to predict recovery should be able to incorporate such perceptions factors. By identifying and prioritizing economic and policy factors, it is shown how such a model, the Analytic Network Process (ANP), can be used to make the prediction of the recovery time of the US economy. The forecast was made during Spring 2009 by the author working with participants in a seminar of “Economics of Financial Crisis” at Cornell University. We used an expert judgment approach within the framework of a decision theory model, based on the ANP structure that captures the interplay between financial market, housing sector, and market confidence, all of which are influenced by a range of policies. It is estimated that a real sustainable recovery will begin around late July or early August 2010. While a quicker recovery is possible given the enormous size of fiscal stimulus, monetary injection and unprecedented measures of qualitative easing, it is our conjecture that the temporary nature of all these measures will make such a quick turn-around unsustainable (a double-dip recession). When sensitivity analysis was performed, it was found that altering the priorities of the policies, and their interactions with the aggregate demand components, would not significantly change the estimated time to recovery. This stability of the prediction is due to the overriding importance of restoring confidence, making the other factors less important.

Keywords: Crisis and recession; Recovery; Animal spirits; Credit crunch; Financial and housing market; Pairwise comparisons

Citation: Iwan J. Azis. 2010, ‘Predicting a recovery date from the economic crisis of 2008′, Socio-Economic Planning Sciences 44 (2010), pp. 122-129

Crisis, Complexity and Conflict
Contributions to Conflict Management, Peace
Economics and Development, Volume 9

Authored by: Iwan J. Azis
Series Editor: Manas Chatterji
ISBN: 9781848552043 (paper)
ISSN: 1572-8323
Publish date: 3 July 2009
Order: http://books.emeraldinsight.com/display.asp?K=9781848552043

Synopsis
Many economic issues that touch the life of millions of people are more complex than most people thought. From the US financial crisis to regional cooperation, from the oil price shock to climate change, policy conflicts abound. The book distils some of these conflicts and argues that understanding the nature and intensity of trade-offs is a key to resolving the conflicts. It can help improve the quality of policy debate, and remind us about what really matters. What caused the 2007/2008 crisis, how could problems in a small segment of the mortgage market bring down the world’s largest economy, what effects an oil price surge had, and how the policy response to climate change can benefit the poor? With a better understanding about the complexity of interrelations, multiple goals that are seemingly at odds in all those issues are not necessarily in conflict with one another. When conflicts are acute, reverting to the ultimate and more fundamental goals can help resolve the problem. What alternative systems to explore (for example, with regulatory rules and an incentive system that minimizes mismanagement and greed), and which segments of society on which to focus (for example, the poor in developing countries) are among key attributes in such fundamental goals. The book provides an enlightening glimpse of complexity in many policy conflicts.