Hysteresis in the Fundamentals of Macroeconomics

Cross, Rod and McNamara, Hugh and Pokrovskii, Alexei and Kalachev, Leonid (2010) Hysteresis in the Fundamentals of Macroeconomics. Discussion paper. University of Strathclyde, Glasgow.

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    Abstract

    Two fundamental problems in economic analysis concern the determination of aggregate output, and the determination of market prices and quantities. The way economic adjustments are made at the micro level suggests that the history of shocks to the economic environment matters. This paper presents tractable approach for introducing hysteresis into models of how aggregate output and market prices and quantities are determined.