Unemployment: natural rate epicycles or hysteresis?

No 2014-002, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

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)
Date: 2014
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (5)

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Journal Article: Unemployment: natural rate epicycles or hysteresis? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:547

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