This paper points out what hysteresis is using a simple model of market entry and exit. A procedure for calculating hysteresis indices for economic time series is outlined. Some preliminary results are presented to assess the explanatory power of hysteresis variables with regard to the equilibrium rate of unemployment in the UK. We find that both natural and "unnatural" variables enter a cointegrating vector for UK unemployment 1959-1996. The natural variable is the replacement ratio. The 'unnatural' variables are the hysteresis index of the exchange rate; and hysteresis indices for the real oil price and the real interest rate.
|Title of host publication
|The Science of Hysteresis (Volume 1)
|Number of pages
|Published - 2005
- mathematical modelling