Memory of recessions

Rod Cross, Hugh McNamara () and Alexei Pokrovskii ()
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Hugh McNamara: Department of applied mathematics, University cork College, Ireland
Alexei Pokrovskii: Department of applied mathematics, University cork College, Ireland

No 1009, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: This paper reviews the evidence on the effects of recessions on potential output. In contrast to the assumption in mainstream macroeconomic models that economic fluctuations do not change potential output paths, the evidence is that they do in the case of recessions. A model is proposed to explain this phenomenon, based on an analogy with water flows inporous media. Because of the discrete adjustments made by heterogeneous economic agents in such a world, potential output displays hysteresis with regard to aggregate demand shocks, and thus retains a memory of the shocks associated with recessions.

Keywords: Recessions; Permanent Effects; Hydraulic Keynesianism; Porous Media; Hysteresis. (search for similar items in EconPapers)
JEL-codes: A12 E12 E32 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-03
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (7)

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http://www.strath.ac.uk/media/1newwebsite/departme ... 2010/10-09_final.pdf (application/pdf)

Related works:
Journal Article: Memory of recessions (2012)
Working Paper: Memory of Recessions (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:str:wpaper:1009

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