Memory of Recessions

Cross, Rod and McNamara, Hugh and Pokrovskii, Alexei (2010) Memory of Recessions. Discussion paper. University of Strathclyde, Glasgow.

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Abstract

This paper reviews the evidence on the effects of recessions on potential output. In contrast to the assumption in mainstream macroeconomic models that economic fluctuations do not change potential output paths, the evidence is that they do in the case of recessions. A model is proposed to explain this phenomenon, based on an analogy with water flows in porous media. Because of the discrete adjustments made by heterogeneous economic agents in such a world, potential output displays hysteresis with regard to aggregate demand shocks, and thus retains a memory of the shocks associated with recessions.

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• Item metadata

  Item type:	Monograph(Discussion paper)
  ID code:	67834
  Dates:	Date Event 15 March 2010 Published
  Notes:	Published as a paper within the Discussion Papers in Economics, No. 10-09 (2010)
  Subjects:	Social Sciences > Economic Theory Social Sciences > Social Sciences (General)
  Department:	Strathclyde Business School > Economics
  Depositing user:	Pure Administrator
  Date deposited:	14 May 2019 14:14
  Last modified:	09 Apr 2024 04:42
  URI:	https://strathprints.strath.ac.uk/id/eprint/67834