Economic expansions don't die of old age: Fed study

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[February 09, 2016]  SAN FRANCISCO (Reuters) - Just because the U.S. economic recovery is nearly seven years along is no reason to think that the nation is due for a recession, according to a study published Monday by the San Francisco Federal Reserve Bank.

Unlike humans, economic expansions "do not become progressively more fragile with age," San Francisco Fed chief researcher Glenn Rudebusch wrote in the latest edition of the regional bank's Economic Letter. "(B)ased only on age, an 80-month-old expansion has effectively the same chance of ending as a 40-month-old expansion."

The study, which draws on a branch of statistics known as survival analysis, provides a glimpse into the reasoning of Fed Chair Janet Yellen, who in December said at a news conference that she does not believe the length of the current expansion means "its days are numbered."

While before World War Two it actually was true that the longer expansions lasted the more likely they were to end, the same is not true of postwar expansions, Rudebusch found. One reason, he said, could be that postwar recoveries are driven less by the production of goods than by the production of services; in addition, he wrote, the federal government including the Fed is now more focused on stabilizing the economy than it had been before the war.

The current economic expansion is nearly seven years old, making it one of the more longer lived recoveries in the postwar period.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)

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