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Play Hysteresis in Supply or in Demand as Part of a Market Model

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  • Matthias Göcke
  • Laura Werner

Abstract

Consequences of economic hysteresis are illustrated based on a standard market model which is extended by hysteresis dynamics. Hysteresis is implemented in a simple linearized way, similar to ‘mechanical play’. As a novelty, both cases, hysteresis in supply and demand, are analysed separately as an explicit part of a supply and demand model. Explicitly modelling supply versus demand side hysteresis has two advantages. (1) Since (hysteretic) supply or demand is only a subsystem of the entire market, persistent endogenous feedback effects on price and quantity are addressed. (2) Differences in the remanent effects of transient shocks between demand and supply hysteresis become obvious.

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  • Matthias Göcke & Laura Werner, 2015. "Play Hysteresis in Supply or in Demand as Part of a Market Model," Metroeconomica, Wiley Blackwell, vol. 66(2), pages 339-374, May.
    • Handle: RePEc:bla:metroe:v:66:y:2015:i:2:p:339-374
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