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Memory of recessions

Author

Listed:
  • Rod Cross

    (Department of Economics, University of Strathclyde)

  • Hugh McNamara

    (Department of applied mathematics, University cork College, Ireland)

  • Alexei Pokrovskii

    (Department of applied mathematics, University cork College, Ireland)

Abstract

This paper reviews the evidence on the effects of recessions on potential output. In contrast to the assumption in mainstream macroeconomic models that economic fluctuations do not change potential output paths, the evidence is that they do in the case of recessions. A model is proposed to explain this phenomenon, based on an analogy with water flows inporous media. Because of the discrete adjustments made by heterogeneous economic agents in such a world, potential output displays hysteresis with regard to aggregate demand shocks, and thus retains a memory of the shocks associated with recessions.

Suggested Citation

  • Rod Cross & Hugh McNamara & Alexei Pokrovskii, 2010. "Memory of recessions," Working Papers 1009, University of Strathclyde Business School, Department of Economics.
    • Handle: RePEc:str:wpaper:1009
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    Cited by:

    1. Justin Doran & Bernard Fingleton, 2014. "Economic shocks and growth: Spatio-temporal perspectives on Europe's economies in a time of crisis," Papers in Regional Science, Wiley Blackwell, vol. 93, pages 137-165, November.
    2. Bassi, Federico & Lang, Dany, 2016. "Investment hysteresis and potential output: A post-Keynesian–Kaleckian agent-based approach," Economic Modelling, Elsevier, vol. 52(PA), pages 35-49.
    3. Di Caro, Paolo, 2014. "Regional recessions and recoveries in theory and practice: a resilience-based overview," MPRA Paper 60300, University Library of Munich, Germany.
    4. Federico Bassi, 2016. "Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model," Review of Political Economy, Taylor & Francis Journals, vol. 28(3), pages 313-335, July.
    5. Justin Doran & Bernard Fingleton, 2018. "US Metropolitan Area Resilience: Insights from dynamic spatial panel estimation," Environment and Planning A, , vol. 50(1), pages 111-132, February.
    6. Bernard Fingleton & Harry Garretsen & Ron Martin, 2012. "Recessionary Shocks And Regional Employment: Evidence On The Resilience Of U.K. Regions," Journal of Regional Science, Wiley Blackwell, vol. 52(1), pages 109-133, February.
    7. Fingleton, Bernard & Palombi, Silvia, 2013. "Spatial panel data estimation, counterfactual predictions, and local economic resilience among British towns in the Victorian era," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 649-660.
    8. Cristian Gherhes & Tim Vorley & Nick Williams, 2018. "Entrepreneurship and local economic resilience: the impact of institutional hysteresis in peripheral places," Small Business Economics, Springer, vol. 51(3), pages 577-590, October.

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    More about this item

    Keywords

    Recessions; Permanent Effects; Hydraulic Keynesianism; Porous Media; Hysteresis.;
    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
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines

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