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Crisis, potential output and hysteresis

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  • Mourougane, Annabelle

Abstract

This paper seeks to estimate the effects of financial crises on potential output accounting for hysteresis on a panel of 34 OECD economies. Hysteresis amplifies the effect of financial crises on potential output. The difference is marginal in the first years (below 0.5% point) but grows over time to about 1/3 after six years. These results are robust to a range of specifications. On average across crisis and country the maximum crisis effect on potential output is about 3%. The effect appears to be more severe for the 2008 crisis though, with a maximum impact above 4% on average for G7 countries. Lastly, the empirical work undertaken in this paper suggests that financial crises have had on average an effect on potential growth in the first years following the crisis but not after.

Suggested Citation

  • Mourougane, Annabelle, 2017. "Crisis, potential output and hysteresis," International Economics, Elsevier, vol. 149(C), pages 1-14.
    • Handle: RePEc:eee:inteco:v:149:y:2017:i:c:p:1-14
    DOI: 10.1016/j.inteco.2016.07.001
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    5. Lin, Hongbo & Zhang, Xiaoling & Chen, Zhenling & Zheng, Heyun, 2020. "Estimating the potential output and output gap for China's coal cities with pollutants reduction," Resources Policy, Elsevier, vol. 68(C).
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    7. Dávila-Ospina, Andrés O., 2023. "Hysteresis From Monetary Policy Mistakes: How Bad Could It Be?," Documentos CEDE 21003, Universidad de los Andes, Facultad de Economía, CEDE.
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    9. Jean-Marc Fournier & Philipp Lieberknecht, 2020. "A Model-based Fiscal Taylor Rule and a Toolkit to Assess the Fiscal Stance," IMF Working Papers 2020/033, International Monetary Fund.

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    More about this item

    Keywords

    C23; E30; O40; Keywords:; Crisis; Potential output; Hysteresis; OECD; Panel estimation;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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