Information cascades and the distribution of economic recessions in the United States

Abstract

The American economy can be thought of as a highly connected random network in terms of both its technological and informational connections. The cumulative size of economic recessions, the fall in output from peak to trough, is analysed for the US economy 1900-2002. A least squares fit of an exponential relationship between size and the rank of size gives a good description of most of the data. But the observation for the Great Depression of the 1930s stands out as a very distinct outlier. In other words, we observe a bimodal relationship of the type predicted by theory.