How large are hysteresis effects? Estimates from a Keynesian growth model

Steven M. Fazzari and Alejandro González

Journal of Economic Dynamics and Control, 2025, vol. 173, issue C

Abstract: This paper estimates a demand-led model of macroeconomic growth and fluctuations in which the growth rate of the economy's supply side converges to the growth rate of demand. Convergence happens because labor supply and productivity growth respond to the degree of slack in the economy. Faster demand growth reduces unemployment and stimulates supply. We estimate the model using simulated method of moments and find that after a unit demand shock, labor productivity and labor supply increase by 0.8 and 0.2, respectively, in the long-run. For an economy with labor market slack, our estimates imply that supply growth could accommodate a one percentage point increase in the growth rate of demand with a 0.74 percentage point reduction in the long-run unemployment rate. These hysteresis results are robust to whether or not the Great Recession is included in our sample.

Keywords: Hysteresis; Demand-led growth; Supermultiplier (search for similar items in EconPapers)
JEL-codes: E12 E32 O41 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188925000247
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:173:y:2025:i:c:s0165188925000247

DOI: 10.1016/j.jedc.2025.105058

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().