Estimating Hysteresis Effects

Francesco Furlanetto, Antoine Lepetit, Ørjan Robstad (), Juan F Rubio-Ramirez and Pål Ulvedal ()

No 2021-059, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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 when the Great Recession is included in the sample. 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.

Keywords: Hysteresis; Structural vector autoregressions; Sign restrictions; Long-run restrictions; Employment; Labor productivity; Local projections (search for similar items in EconPapers)
JEL-codes: C32 E24 E32 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2021-09-09
New Economics Papers: this item is included in nep-isf and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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https://www.federalreserve.gov/econres/feds/files/2021059pap.pdf (application/pdf)

Related works:
Journal Article: Estimating Hysteresis Effects (2025)
Working Paper: Estimating Hysteresis Effects (2021)
Working Paper: Estimating Hysteresis Effects (2021)
Working Paper: Estimating Hysteresis Effects (2021)
Working Paper: Estimating hysteresis effects (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-59

DOI: 10.17016/FEDS.2021.059

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