Hysteresis and Business Cycles

Fatás, Antonio, Valerie Cerra and Sweta Saxena
Authors registered in the RePEc Author Service: Antonio Fatas

No 14531, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,†argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis, as GDP in advanced economies remains far below the pre-crisis trends. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.

Keywords: Business cycles; Growth; Hysteresis; Macroeconomic policy; Persistence; Stabilization policy; Booms; Crises; Recovery (search for similar items in EconPapers)
JEL-codes: E32 E60 O47 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Hysteresis and Business Cycles (2023)
Working Paper: Hysteresis and Business Cycles (2020)
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