Hysteresis in Unemployment: Old and New Evidence

Laurence Ball

No 14818, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper argues that hysteresis helps explain the long-run behavior of unemployment. The natural rate of unemployment is influenced by the path of actual unemployment, and hence by shifts in aggregate demand. I review past evidence for hysteresis effects and present new evidence for 20 developed countries. A central finding is that large increases in the natural rate are associated with disinflations, and large decreases with run-ups in inflation. These facts are consistent with hysteresis theories and inconsistent with theories in which the natural rate is independent of aggregate demand.

JEL-codes: E24 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-cba, nep-lab and nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (130)

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