Is the natural rate hypothesis consistent with hysteresis?

Cross, Rod

doi:10.1017/cbo9780511559631.011

Cited by 44 publications

(38 citation statements)

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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).…”

mentioning

confidence: 99%

“…For instance, tighter monetary policy (i.e. higher interest rates) may cause unemployment and raise the natural rate of unemployment (Blanchard and Summers, 1987;Cross, 1995) increased import penetration (Dixit, 1989). However, these treatments of policy induced hysteresis are not placed in a frame of policy lock-in (i.e.…”

mentioning

confidence: 99%

“…Hysteresis is a concept that has been applied to describe path dependence in the real economy, especially as regards unemployment (Blanchard and Summers, 1987;Cross, 1993Cross, , 1995. It turns out hysteresis has significant relevance for understanding the impact of economic policy.…”

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confidence: 99%

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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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Section: Hysteresis and Policy Lock-inmentioning

confidence: 99%

mentioning

confidence: 99%

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confidence: 99%

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confidence: 99%

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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 does not mean that the short term NAIRU is the same as the long term one for there can be effects of changes in unemployment on the pace of (wage) inflation (cf. Cross, 1995) but it does require that there is some effect of the level of unemployment on (wage) inflation and that there are no persistent effects arising from, for example, the level of aggregate demand and its effects on investment, capacity and labor force participation. The term hysteresis is oflen to used to refer to cases where there is some prolonged effect from, say, current unemployment but where the effect gradually wears off, and hence where there are no persistent effects.…”

Section: Defining the Nairumentioning

confidence: 99%