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Lakshman Achuthan and Anirvan Banerji

Finding the Root Cause of Recessions

Two things bear most of the blame: external shocks and economic volatility.
Beware of shocks.

Beware of shocks.

Photographer: Gary Hershorn/Getty Images

The U.S. managed to avoid recession after the financial crisis, but Japan has succumbed to three contractions since 2009. Economic volatility is a key reason for this divergence, and that tells us a great deal about the risk of future U.S. recessions.

During this decade, both the U.S. and Japan have experienced multiple growth rate cycles, which consist of alternating periods of rising and falling economic growth. Japan had four growth rate cycle (GRC) downturns, three of which turned into recessions; the U.S. experienced three GRC downturns, none of which were recessionary. Why not?