Unemployment: natural rate epicycles or hysteresis?

Rod Cross

No 1402, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by “structural†variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed. The implications for macroeconomic policy, and for the macroeconomics profession, are discussed.

Keywords: Unemployment; Natural Rate Hypothesis; Hysteresis (search for similar items in EconPapers)
JEL-codes: B22 C60 E12 E24 E31 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2014-02
New Economics Papers: this item is included in nep-lab and nep-mac
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Unemployment: natural rate epicycles or hysteresis? (2014)
Working Paper: Unemployment: natural rate epicycles or hysteresis? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:str:wpaper:1402

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