Economic resilience in the short-run: A dynamic macroeconomic approach

We analyzed the dynamics of the relatively elusive concept of economic resilience. Resilience and its two distinctive components, adaptability and resistance to shocks, are concepts that conveniently characterize the structure of economies in the long-run. In studying resilience, we established a relationship between the short-run and long-run dynamics, or from a macroeconomic perspective, between transitional dynamics and long-run growth. The loss or gain of systemic resilience is usually gradual and, to a large extent, reversible: over time, resilience may fluctuate. We extended previous analyses by studying the resilience of an economic system over several short-run periods corresponding to the distinct phases of the business cycle. We articulated these periods in a backward sequence of overlapping long-run periods that allowed us to compute the adaptability and resistance indexes, even if they were originally designed to measure resilience in the long-term. Unlike other studies that measured it using flow variables such as (un)employment or income, we used capital stock to measure the attributes of adaptability and resistance. The dynamics of aggregate capital reflect much better the evolution of the size and complexity of the economy and also allowed us to subdivide adaptability into its depreciation and investment components. Our case study was the Spanish economy during the period 1964–2016, encompassing different subperiods of expansion, slowdown, and crisis. We identified a reference point of perfect resilience, and found that the most resilient subperiod corresponds to the years of expansion 1994–2007. The least resistent subperiod is 1974–1985, showing strong slowdown and crisis. The least adaptable subperiod is 1986–1991. Adaptability was mostly stable during expansions and recessions, and was perfect during the most resilient subperiod. The depreciation effect mimicked the adaptability pattern better than investment. Resistance did not show a clear pro- or counter-cyclical pattern.