Hysteresis and economics

Abstract

The goal of this article is to discuss the rationale underlying the application of hysteresis to economic models. In particular, we explain why many aspects of real economic systems are hysteretic is plausible. The aim is to be explicit about the difficulties encountered when trying to incorporate hysteretic effects into models that can be validated and then used as possible tools for macroeconomic control. The growing appreciation of the ways that memory effects influence the functioning of economic systems is a significant advance in economic thought and, by removing distortions that result from oversimplifying specifications of input-output relations in economics, has the potential to narrow the gap between economic modeling and economic reality. Although economic systems evolve in time, mainstream economics on the whole is not cognizant of the history dependence of economic processes, even though the relevance of the historical dimension in economics has been stressed time and again by historians and philosophers, for example, in [1], which is also one of the first works in economics to mention hysteresis explicitly (but without providing a rigorous definition). Merely accepting that economic structures evolve is not sufficient to single out any

The Role of Embeddedness on Regional Economic Resilience: Evidence from the UK

“…Initial approaches have used the notion of engineering resilience, where a crisis throws a place off their pre-determined path and a locality is resilient if it quickly bounces back [16]. Refuting this deterministic approach, multiple equilibria perspectives argued that an area might move from one equilibrium to another higher or lower one with the potential for permanent hysteretic effects [17][18][19].…”

Entrepreneurship and local economic resilience: the impact of institutional hysteresis in peripheral places

“…However, in the case of institutional hysteresis, not all history matters. Extreme experiences (e.g., major socio-economic shocks) often inflict structural changes and can influence the behaviour of economic agents, hence the display of 'selective memories' characterising places affected by institutional hysteresis (Setterfield 2010), with the 'memory' of the shock persisting through a process known as 'remanence' (Grinfeld et al 2009). In relation to institutions, Sztompka (1996, p.126) explains that the selfreproducing nature of informal institutions, and hence 'remanence', is determined by the 'generational effect', as 'the bridge between the influences of the past and the future is provided by generations … who-in their formative years-have happened … to have lived through similar, significant social events'.…”

On babuška’s model for asymmetric hysteresis

“…The term hysteresis refers to a special type of behaviour found in many processes like magnetism [1], geophysics [2,Chapter 6], economics [3], biology [4], and several other fields. A survey of the issue "what is hysteresis" is provided in [5, Section 2].…”

“…• Take for instance the Bouc-Wen model (3). A general form of the model has been proposed first by Bouc in 1971 [19] and later on specified by Wen in 1976 [20].…”