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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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    6. Romer, Christina D. & Romer, David H. (ed.), 1997. "Reducing Inflation," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226724843, June.
    7. Siebert, Horst, 1997. "Labor market rigidities and unemployment in Europe," Kiel Working Papers 787, Kiel Institute for the World Economy (IfW Kiel).
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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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