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Reverse hysteresis? Persistent effects of autonomous demand expansions

Author

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  • Daniele Girardi
  • Walter Paternesi Meloni
  • Antonella Stirati

Abstract

Empirical works documenting highly persistent effects of negative demand shocks (‘hysteresis’) have questioned the prevailing wisdom that potential output is exogenous to aggregate demand fluctuations. We assess whether the effects of positive demand shocks also tend to persist beyond the short run. We estimate the impact of 126 aggregate demand expansions in OECD countries between 1960 and 2015 through local projections, using a dynamic two-way fixed-effects model and a propensity score-based specification. We find that demand expansions exert positive persistent effects on GDP, participation rate and capital stock. Effects on the unemployment rate and productivity are also strong and quite persistent, but evidence regarding their permanence is mixed. The effect on the inflation rate is positive but small and imprecisely estimated, and there is no sign of accelerating inflation. Our results bear relevant implications for existing models of hysteresis and for theories of demand-led growth.

Suggested Citation

  • Daniele Girardi & Walter Paternesi Meloni & Antonella Stirati, 2020. "Reverse hysteresis? Persistent effects of autonomous demand expansions," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 44(4), pages 835-869.
    • Handle: RePEc:oup:cambje:v:44:y:2020:i:4:p:835-869.
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    File URL: http://hdl.handle.net/10.1093/cje/beaa009
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    Citations

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    Cited by:

    1. Laurence Ball & Joern Onken, 2022. "Hysteresis in unemployment: Evidence from OECD estimates of the natural rate," International Finance, Wiley Blackwell, vol. 25(3), pages 268-284, December.
    2. Davide Romaniello, 2022. "Unemployment gap, isteresi e disoccupazione di lunga durata: quale ruolo nella comprensione dell'inflazione? (Unemployment gap, hysteresis and long-term unemployment: which role in explaining inflatio," Moneta e Credito, Economia civile, vol. 75(299), pages 267-283.
    3. Arestis, Philip & Ferreiro, Jesus & Gomez, Carmen, 2023. "Does employment protection legislation affect employment and unemployment?11We acknowledge the comments of an editor and an associate editor of the journal and three reviewers. Their suggestions and r," Economic Modelling, Elsevier, vol. 126(C).
    4. Guilherme Spinato Morlin & Nikolas Passos & Riccardo Pariboni, 2021. "Growth theory and the growth model perspective: Insights from the supermultiplier," Department of Economics University of Siena 869, Department of Economics, University of Siena.
    5. Pedrosa, Ítalo & Brochier, Lídia & Freitas, Fabio, 2023. "Debt hierarchy: Autonomous demand composition, growth and indebtedness in a Supermultiplier model," Economic Modelling, Elsevier, vol. 126(C).
    6. Claudia Fontanari & Antonella Palumbo, 2023. "Permanent scars: The effects of wages on productivity," Metroeconomica, Wiley Blackwell, vol. 74(2), pages 351-389, May.
    7. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    8. Servaas Storm, 2021. "Labour's loss: Why macroeconomics matters," PSL Quarterly Review, Economia civile, vol. 74(299), pages 249-285.
    9. Stefano Di Bucchianico, 2021. "Negative Interest Rate Policy to Fight Secular Stagnation: Unfeasible, Ineffective, Irrelevant, or Inadequate?," Review of Political Economy, Taylor & Francis Journals, vol. 33(4), pages 687-710, October.
    10. José A. Pérez‐Montiel & Carles Manera, 2022. "Is autonomous demand really autonomous in the United States? An asymmetric frequency‐domain Granger causality approach," Metroeconomica, Wiley Blackwell, vol. 73(1), pages 78-92, February.
    11. Davide Romaniello, 2021. "Note bibliografiche: Stirati A. (2020), Lavoro e salari. Un punto di vista alternativo sulla crisi, Roma: Ed. L’asino d’oro, pp. 279, ISBN:9788864435367," Moneta e Credito, Economia civile, vol. 74(293), pages 87-93.
    12. Marwil J. Dávila-Fernández & Germana Giombini & Edgar J. Sánchez-Carrera, 2023. "Climateflation and monetary policy in an environmental OLG growth model," Department of Economics University of Siena 905, Department of Economics, University of Siena.
    13. Eckhard Hein & Valeria Jimenez, 2022. "The macroeconomic implications of zero growth: a post-Keynesian approach," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 19(1), pages 41-60, April.
    14. Stephen Thompson, 2022. "“The total movement of this disorder is its order”: Investment and utilization dynamics in long‐run disequilibrium," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 638-682, May.
    15. Stirati, Antonella & Paternesi Meloni, Walter, 2021. "Unemployment and the wage share: a long-run exploration for major mature economies," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 330-352.
    16. Koray Yıldırım & Neşe Algan & Harun Bal, 2024. "Investment Hysteresis: An Empirical Essay Turkish Case," Evaluation Review, , vol. 48(1), pages 143-176, February.
    17. Paternesi Meloni, Walter & Romaniello, Davide & Stirati, Antonella, 2022. "Inflation and the NAIRU: assessing the role of long-term unemployment as a cause of hysteresis," Economic Modelling, Elsevier, vol. 113(C).
    18. Walter Paternesi Meloni & Antonella Stirati, 2023. "The decoupling between labour compensation and productivity in high‐income countries: Why is the nexus broken?," British Journal of Industrial Relations, London School of Economics, vol. 61(2), pages 425-463, June.
    19. Diogo Martins, 2024. "The post-pandemic inflation debate: a critical review," Working Papers REM 2024/0308, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    20. Barbieri Góes, Maria Cristina & Deleidi, Matteo, 2022. "Output determination and autonomous demand multipliers: An empirical investigation for the US economy," Economic Modelling, Elsevier, vol. 116(C).
    21. Pompeo Della Posta & Enrico Marelli & Marcello Signorelli, 2020. "A market‐financed and growth‐enhancing investment plan for the euro area," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 604-632, July.
    22. Walter Paternesi Meloni & Antonella Stirati, 2021. "What has driven the delinking of wages from productivity? A political economy-based investigation for high-income economies," Working Papers PKWP2104, Post Keynesian Economics Society (PKES).
    23. Di Bucchianico, Stefano, 2021. "Inequality, household debt, ageing and bubbles: A model of demand-side Secular Stagnation," IPE Working Papers 160/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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