Investment hysteresis and potential output: A post-Keynesian–Kaleckian agent-based approach

Bassi, Federico; Lang, Dany

doi:10.1016/j.econmod.2015.06.022

Cited by 41 publications

(26 citation statements)

References 36 publications

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“…The obvious dissatisfaction with the (linear) unit-root process approach is currently bringing a revival of the importance of the detection of nonlinearities in empirical macroeconomics: so, for example, Beaudry et al (2016) examining a few empirical time series, like unemployment and working hours, do find evidence of cyclical recurrent patterns not detectable when estimating auto-regressive linear stochastic models, therefore questioning the widespread use of such methods. However, the critique to the unit-root process approach is deeper and concerns the very underlying theory: as suggested by Piscitelli et al (2000), Hallett and Piscitelli (2002), Amable et al (2004) and Bassi and Lang (2016), genuine models of hysteresis should embed a nonlinear structure. According to Piscitelli et al (2000), three features characterise the memory of hysteretic processes, namely, non-linearity, selectivity, remanence.…”

Section: The Nature Of Hysteresismentioning

confidence: 99%

Causes and Consequences of Hysteresis: Aggregate Demand, Productivity and Employment

et al. 2017

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In this work we develop an agent-based model where hysteresis in major macroeconomic variables (e.g. GDP, productivity, unemployment) emerges out of the decentralized interactions of heterogeneous firms and workers. Building upon the model in , we specify an endogenous process of accumulation of workers' skills and a state-dependent process of entry, studying their hysteretic impacts. Indeed, hysteresis is ubiquitous. However, this is not due to market imperfections, but rather to the very functioning of decentralised economies characterised by coordination externalities and dynamic increasing returns. So, contrary to the insider-outsider hypothesis (Blanchard and Summers, 1986), the model does not support the findings that rigid industrial relations may foster hysteretic behaviour in aggregate unemployment. On the contrary, in line with the recent discussion in Ball et al. (2014), this contribution provides evidence that during severe downturns, and thus declining aggregate demand, phenomena like lower investment and innovation rates, skills deterioration, and declining entry dynamics are better candidates to explain long-run unemployment spells and lower output growth. In that, more rigid labour markets dampen hysteretic dynamics by supporting aggregate demand, thus making the economy more resilient.

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Section: The Nature Of Hysteresismentioning

confidence: 99%

Causes and Consequences of Hysteresis: Aggregate Demand, Productivity and Employment

et al. 2017

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“…Moreover, the negative effects of fiscal policies are magnified by higher lever of income inequality (Dosi et al, 2015). Finally, austerity policies can also reduce long-run productivity and GDP growth, by harming innovation rate and the diffusion of new technologies (Dosi et al, 2014b) and firms' investment rates (Bassi and Lang, 2016). In fact, stabilization policies can affect both short-and long-run dynamics as found also by Russo et al (2007) and Harting (2015).…”

Section: Fiscal Policymentioning

confidence: 97%

Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead

Fagiolo

Roventini

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe Great Recession seems to be a natural experiment for economic analysis, in that it has shown the inadequacy of the predominant theoretical framework -the New Neoclassical Synthesis (NNS) -grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research avenue should escape the strong theoretical requirements of NNS models (e.g., equilibrium, rationality, representative agent, etc.) and consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This is indeed the methodological core of agent-based computational economics (ACE), which is presented in this paper. We also discuss how ACE has been applied to policy analysis issues, and we provide a survey of macroeconomic policy applications (fiscal and monetary policy, bank regulation, labor market structural reforms and climate change interventions). Finally, we conclude by discussing the methodological status of ACE, as well as the problems it raises.

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“…It has also been applied to explain employment and unemployment patterns in labor markets (Blanchard and Summers, 1987;Cross, 1993Cross, , 1995, and to explain why aggregate demand shocks can persist and generate stagnation (Bassi and Lang, 2015). 1 The current paper aims to apply it to the theory of economic policy.…”

Section: Hysteresis and Policy Lock-inmentioning

confidence: 99%

“…This has been the traditional locus of hysteresis analysis in economics, with exogenous developments causing changes in economic structure and behavior that are hard to reverse (Dixit, 1989(Dixit, , 1992Cross, 1993Cross, , 1995Bassi and Lang 2015).…”

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confidence: 99%

A theory of economic policy lock-in and lock-out via hysteresis: rethinking economists’ approach to economic policy

Palley

2017

Economics

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This paper uses hysteresis to develop the concept of policy lock-in and lock-out. Policy changes may near-irrevocably change the economy's structure, thereby changing the distribution of wealth, income and power. That may lock-in policy by changing the political equilibrium. Exit costs that block policy reversals also cause lock-in. Conventional thinking treats policy as a dial which is adjusted according to the economy's state. Policy lock-in questions the dial formulation and raises new issues for optimal policy design. It also offers insights into economic and political crisis theory. Policy lock-in is illustrated with examples that include tax policy, government spending, the euro, globalization, and the neoliberal policy experiment. JEL D7, E6, F5, H3, L5

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Investment hysteresis and potential output: A post-Keynesian–Kaleckian agent-based approach

Cited by 41 publications

References 36 publications

Causes and Consequences of Hysteresis: Aggregate Demand, Productivity and Employment

Causes and Consequences of Hysteresis: Aggregate Demand, Productivity and Employment

Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead

A theory of economic policy lock-in and lock-out via hysteresis: rethinking economists’ approach to economic policy

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