Estimating Hysteresis Effects

Francesco Furlanetto

doi:10.1257/mac.20220163

Estimating Hysteresis Effects

2025-01-01

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Francesco Furlanetto *

Juan Francisco Rubio-Ramı́rez

P

Pål Ulvedal

DOI：10.1257/mac.20220163

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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 in samples starting in the 1980s. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, while 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. (JEL C51, E22, E23, E24, E32, J22, J24)

Keyword:

STRUCTURAL VECTOR AUTOREGRESSIONS

BUSINESS-CYCLE

TECHNOLOGY SHOCKS

MONETARY-POLICY

AGGREGATE DEMAND

SIGN RESTRICTIONS

IDENTIFICATION

INFERENCE

FLUCTUATIONS

UNEMPLOYMENT

Estimating Hysteresis Effects

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