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Hysteresis in Unemployment: Old and New Evidence

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  • Laurence M. Ball

Abstract

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.

Suggested Citation

  • Laurence M. Ball, 2009. "Hysteresis in Unemployment: Old and New Evidence," NBER Working Papers 14818, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:14818
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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