Will hysteresis effects afflict the US economy during the post-COVID-19 recovery?

Mark Setterfield

Review of Keynesian Economics, 2023, vol. 11, issue 4, 507-528

Abstract: An important property of hysteresis is that temporary events of sufficient magnitude can have permanent effects. The COVID-19 recession in the US was both temporary and extremely deep. This invites the hypothesis that the recession had permanent effects on the US economy as a result of hysteresis. We investigate this hypothesis by focusing on aggregate activity – both actual and potential – and searching for signs of possible adverse hysteresis effects in the data generated by the first two to three years of recovery from the COVID-19 recession. Results suggest that few such signs exist. The conclusion that emerges is that aggregate levels of activity in the US economy will emerge largely unscathed in the longer term from short-term adversities associated with the COVID-19 recession.

Keywords: Hysteresis; persistence; COVID-19; actual output; potential output (search for similar items in EconPapers)
JEL-codes: E12 E32 E66 (search for similar items in EconPapers)
Date: 2023
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