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Hysteresis in Unemployment: Old and New Evidence

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Author Info
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.

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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
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Handle: RePEc:nbr:nberwo:14818

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E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

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