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Is there hysteresis in potential output estimates?

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  • Roa Rozo, Julián

Abstract

Using an error correction model, this paper studies the dynamics of GDP and potential GDP using OECD's Economic Outlook and IMF's World Economic Outlook estimates of the output gap. The findings suggest the presence of hysteresis, implying that short-run shocks to GDP have sizeable permanent effects on potential GDP.

Suggested Citation

  • Roa Rozo, Julián, 2024. "Is there hysteresis in potential output estimates?," Economics Letters, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004925
    DOI: 10.1016/j.econlet.2023.111466
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    References listed on IDEAS

    as
    1. Olivier Blanchard, 2018. "Should We Reject the Natural Rate Hypothesis?," Journal of Economic Perspectives, American Economic Association, vol. 32(1), pages 97-120, Winter.
    2. Laurence Ball & Joern Onken, 2022. "Hysteresis in unemployment: Evidence from OECD estimates of the natural rate," International Finance, Wiley Blackwell, vol. 25(3), pages 268-284, December.
    3. Valerie Cerra & Antonio Fatás & Sweta C. Saxena, 2023. "Hysteresis and Business Cycles," Journal of Economic Literature, American Economic Association, vol. 61(1), pages 181-225, March.
    4. Oscar Jorda & Alan Taylor & Sanjay Singh, 2019. "The Long-Run Effects of Monetary Policy," 2019 Meeting Papers 1307, Society for Economic Dynamics.
    5. Łukasz Rawdanowicz & Romain Bouis & Kei-Ichiro Inaba & Ane Kathrine Christensen, 2014. "Secular Stagnation: Evidence and Implications for Economic Policy," OECD Economics Department Working Papers 1169, OECD Publishing.
    6. J. Bradford DeLong & Lawrence H. Summers, 2012. "Fiscal Policy in a Depressed Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(1 (Spring), pages 233-297.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Hysteresis; Business cycle; Potential GDP;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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