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Will hysteresis effects afflict the US economy during the post-COVID-19 recovery?

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  • Mark Setterfield

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 two to three 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-19 recovery?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 11(4), pages 507-528, November.
    • Handle: RePEc:elg:rokejn:v:11:y:2023:i:4:p507-528
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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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