Estimating Hysteresis Effects

Francesco Furlanetto, Antoine Lepetit, Ørjan Robstad, Juan Rubio-Ramírez and Pål Ulvedal

American Economic Journal: Macroeconomics, 2025, vol. 17, issue 1, 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.

JEL-codes: C51 E22 E23 E24 E32 J22 J24 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Estimating Hysteresis Effects (2021)
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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DOI: 10.1257/mac.20220163

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