Tuesday, September 29, 2009

Michael Mussa: US economy will have a sharp rebound

Michael Mussa is a no-nonsense economist. It's always good to hear him.

Mussa offers some insights of why he thinks US economy will have a rapid recovery. He expects annual growth rate to be 4.5% and accumulative growth rate from now to the end of 2010 to be 6.8%, both substantially higher than the blue-chip forecast.

Mussa's forecast largely based on the observation that the sharper the economy falls, the steeper the economy will come back. This statistical behavior of business cycle is shown in the following graph and also documented in my previous post.

Mussa's forecast still left many questions unanswered: Should we simply rely on a historical statistical pattern to make our economic forecast? We know every recession is different; What if this Great Recession is so different that it will break this historical pattern.

Now I give you Michael Mussa (Source: PIIE, about 30 mins)