Recession's Progress: Halfway To Recovery

05/18/2009 05:12 am ET | Updated May 25, 2011

The heightened uncertainty after the credit crunch led firms to postpone investment and hiring decisions. Mistakes can be costly, so if conditions are unpredictable, the best course of action is often to wait. Of course, if every firm in the economy waits, economic activity slows down (Bloom, Floetotto and Jaimovich 2009). This big spike in uncertainty in the fall of 2008 was a major factor behind the recent rapid slowdown. But now that uncertainty is falling back, growth should start to rebound. Firms will start to invest and hire again to make up for lost time.

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