2009/03/01 by Laurence Ball · 2 citations
Economics, Econometrics and Finance · #Labor market dynamics and wage inequality #Monetary Policy and Economic Impact #Economic theories and models #Unemployment #Hysteresis #Economics #Keynesian economics #Labour economics #Macroeconomics #Physics
paper · pdf · doi:10.3386/w14818
openalex publication_date 2009/03/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
This paper argues that hysteresis helps explain the long-run behavior of unemployment. The natural rate of unemployment is influenced by the path of actual unemployment, and hence by shifts in aggregate demand. I review past evidence for hysteresis effects and present new evidence for 20 developed countries. A central finding is that large increases in the natural rate are associated with disinflations, and large decreases with run-ups in inflation. These facts are consistent with hysteresis theories and inconsistent with theories in which the natural rate is independent of aggregate demand.