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Hysteresis in Unemployment: Old and New Evidence

  • Laurence M. Ball

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.

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File URL: http://www.nber.org/papers/w14818.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14818.

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Date of creation: Mar 2009
Date of revision:
Handle: RePEc:nbr:nberwo:14818
Note: EFG ME
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  1. Christina D. Romer & David H. Romer, 1997. "Reducing Inflation: Motivation and Strategy," NBER Books, National Bureau of Economic Research, Inc, number rome97-1, September.
  2. Engelbert Stockhammer & Simon Sturn, 2008. "The Impact of Monetary Policy on Unemployment Hysteresis," IMK Working Paper 15-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Olivier Blanchard, 2006. "European unemployment: the evolution of facts and ideas," Economic Policy, CEPR;CES;MSH, vol. 21(45), pages 5-59, 01.
  4. Romer, Christina D. & Romer, David H. (ed.), 1997. "Reducing Inflation," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226724843, July.
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