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Estimating Hysteresis Effects

Francesco Furlanetto (), Antoine Lepetit, Ørjan Robstad, Juan Rubio-Ramírez and Pal Ulvedal

No 2021-11, Working Papers from FEDEA

Abstract: In this paper we identify demand shocks that can have a permanent effect onoutput through hysteresis effects. We call these shocks permanent demand shocks.They are found to be quantitatively important in the United States, in particularwhen the Great Recession is included in the sample. Permanent demand shocksdriven recessions lead to a permanent decline in employment and investment (including R&D investment) while output per worker is largely unaffected. We findstrong evidence that hysteresis transmits through a rise in long-term unemployment and a decline in labor force participation and disproportionately affects theleast productive workers.

Date: 2021-06
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Working Paper: Estimating Hysteresis Effects (2021) Downloads
Working Paper: Estimating hysteresis effects (2020) Downloads
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