Hysteresis, endogenous growth, and monetary policy

Juan Amador Torres ()

No 348, Working Papers from University of California, Davis, Department of Economics

Abstract: I provide evidence of substantial hysteresis (i.e., a situation in which temporary shocks have long-run effects) from monetary shocks on two sources of endogenous growth; human capital and technological adoption. This contribution is the first to test for the presence of this phenomenon in direct measures of the supply-side potential of economies, instead of indirect measures, e.g., TFP. To estimate the effects of exogenous monetary policy shocks, I improve on the the trilemma identification by incorporating a mean-unbiased instrumental variable estimator. Results show substantial hysteresis in both human capital and technological adoption. Importantly, these are found to be asymmetric, as only contractionary shocks result in long lasting responses. I evaluate the aggregate importance of monetary hysteresis with a growth accounting exercise. Across the 17 countries in sample, the accumulated average cost of monetary hysteresis ranges between 1.2 and 9.6% of TFP, for human capital and the adoption of electricity, respectively.

Keywords: hysteresis; money non-neutrality; endogenous growth (search for similar items in EconPapers)
JEL-codes: E01 E30 E32 E44 E47 E51 F33 F42 F44 (search for similar items in EconPapers)
Pages: 30
Date: 2022-04-20
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-gro, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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