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Estimating Hysteresis Effects

Francesco Furlanetto (), Antoine Lepetit, Ørjan Robstad (), Juan F Rubio-Ramirez () and Pål Ulvedal ()

No 2021-24, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

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 when the sample includes the Great Recession. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, although 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.

Keywords: hysteresis; structural vector autoregressions; sign restrictions; long-run restrictions; employment; labor productivity; local projections (search for similar items in EconPapers)
JEL-codes: C32 E24 E32 (search for similar items in EconPapers)
Pages: 34
Date: 2021-11-09
New Economics Papers: this item is included in nep-cwa and nep-mac
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Published in 2021

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Related works:
Working Paper: Estimating Hysteresis Effects (2021) Downloads
Working Paper: Estimating Hysteresis Effects (2021) Downloads
Working Paper: Estimating Hysteresis Effects (2021) Downloads
Working Paper: Estimating hysteresis effects (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:93479

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DOI: 10.29338/wp2021-24

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