American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Estimating Hysteresis Effects
American Economic Journal: Macroeconomics
vol. 17,
no. 1, January 2025
(pp. 35–70)
Abstract
In this paper we identify demand shocks that can have a permanent effect on output through hysteresis effects. We call these shocks permanent demand shocks. They are found to be quantitatively important in the United States, in particular in samples starting in the 1980s. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, while output per worker is largely unaffected. We find strong evidence that hysteresis transmits through a rise in long-term unemployment and a decline in labor force participation and disproportionately affects the least productive workers.Citation
Furlanetto, Francesco, Antoine Lepetit, Ørjan Robstad, Juan Rubio-Ramírez, and Pål Ulvedal. 2025. "Estimating Hysteresis Effects." American Economic Journal: Macroeconomics, 17 (1): 35–70. DOI: 10.1257/mac.20220163Additional Materials
JEL Classification
- C51 Model Construction and Estimation
- E22 Investment; Capital; Intangible Capital; Capacity
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- J22 Time Allocation and Labor Supply
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
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