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

Mark Setterfield

No 2306, Working Papers from New School for Social Research, Department of Economics

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 2-3 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)
Pages: 32 pages
Date: 2023-06
New Economics Papers: this item is included in nep-pke
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