Memory of Recessions

Rod Cross, Hugh McNamara, Alexei Pokrovskii

Research output: Working paperDiscussion paper

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.
LanguageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-25
Number of pages26
Volume10
Publication statusPublished - 15 Mar 2010

Fingerprint

recession
hysteresis
economic model
macroeconomics
fluctuation
evidence
water
demand
economics
Potential output
Recession

Keywords

  • recessions
  • permanent effects
  • hydraulic keynesianism
  • porous media
  • hysteresis

Cite this

Cross, R., McNamara, H., & Pokrovskii, A. (2010). Memory of Recessions. (09 ed.) (pp. 1-25). Glasgow: University of Strathclyde.
Cross, Rod ; McNamara, Hugh ; Pokrovskii, Alexei. / Memory of Recessions. 09. ed. Glasgow : University of Strathclyde, 2010. pp. 1-25
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Cross, R, McNamara, H & Pokrovskii, A 2010 'Memory of Recessions' 09 edn, University of Strathclyde, Glasgow, pp. 1-25.

Memory of Recessions. / Cross, Rod; McNamara, Hugh; Pokrovskii, Alexei.

09. ed. Glasgow : University of Strathclyde, 2010. p. 1-25.

Research output: Working paperDiscussion paper

TY - UNPB

T1 - Memory of Recessions

AU - Cross, Rod

AU - McNamara, Hugh

AU - Pokrovskii, Alexei

N1 - Published as a paper within the Discussion Papers in Economics, No. 10-09 (2010)

PY - 2010/3/15

Y1 - 2010/3/15

N2 - 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.

AB - 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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KW - permanent effects

KW - hydraulic keynesianism

KW - porous media

KW - hysteresis

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BT - Memory of Recessions

PB - University of Strathclyde

CY - Glasgow

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Cross R, McNamara H, Pokrovskii A. Memory of Recessions. 09 ed. Glasgow: University of Strathclyde. 2010 Mar 15, p. 1-25.