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Will hysteresis effects afflict the US economy during the post-COVID recovery?

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  • Mark Setterfield

    (Department of Economics, New School for Social Research, USA)

Abstract

An important property of hysteresis is that temporary events of sufficient magnitude can have permanent effects. The COVID-19 recession in the US was both temporary and extremely deep. This invites the hypothesis that the recession had permanent effects on the US economy as a result of hysteresis. We investigate this hypothesis by focusing on aggregate activity -- both actual and potential -- and searching for signs of possible adverse hysteresis effects in the data generated by the first 2-3 years of recovery from the COVID-19 recession. Results suggest that few such signs exist. The conclusion that emerges is that aggregate levels of activity in the US economy will emerge largely unscathed in the longer-term from short-term adversities associated with the COVID-19 recession.

Suggested Citation

  • Mark Setterfield, 2023. "Will hysteresis effects afflict the US economy during the post-COVID recovery?," Working Papers 2306, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2306
    as

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    File URL: http://www.economicpolicyresearch.org/econ/2023/NSSR_WP_062023.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Hysteresis; persistence; COVID-19; actual output; potential output;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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