Abstract
We study Switzerland’s weak growth during the 1990s through the lens of the business cycle accounting framework of Chari et al. (Econometrica 75(3):781–836, 2007). Our main result is that weak productivity growth cannot account for the 1993–1996 stagnation episode. Rather, the stagnation is explained by factors that made labour and investment expensive. We show that increased labour income taxes and financial frictions are plausible causes. Holding these factors constant, the counterfactual annualized real output growth over the 1993Q1–1996Q4 period is 1.93% compared to realized growth of 0.35%.
Highlights
Severe economic crises are often followed by a prolonged episode of economic stagnation
We focus on their role for our target period 1987–1996 and use these results together with additional evidence to assess the different hypotheses of the stagnation
4 Concluding remarks We examine the causes of the Swiss stagnation of the 1990s through the lenses of the business cycle accounting framework of Chari et al (2007)
Summary
Severe economic crises are often followed by a prolonged episode of economic stagnation (see, e.g. Jordà et al, 2013). Severe economic crises are often followed by a prolonged episode of economic stagnation Understanding the causes of such stagnation episodes is a key task in macroeconomics. This paper examines a much under-researched episode: the Swiss stagnation during the 1990s. The Swiss stagnation episode stands out compared to the experience of most other industrialized countries. Many countries experienced a recession at the beginning of the 1990s, most industrialized countries returned to growth relatively quickly. Switzerland remained in a prolonged stagnation that lasted until 1997 (see Fig. 1). Annual real growth averaged approximately 1% throughout the decade, placing Switzerland second-to-last among all OECD countries. In per-capita terms, the picture for Switzerland is even bleaker, with average annual real growth rates of approximately 0.3%
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