Unemployment: Natural Rate Epicycles of Hysteresis?

Research output: Working paperDiscussion paper

Abstract

This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by “structural” variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed. The implications for macroeconomic policy, and for the macroeconomics profession, are discussed.
LanguageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-20
Number of pages21
Volume14
Publication statusPublished - Feb 2014

Fingerprint

Natural rate of unemployment
Hysteresis
Equilibrium unemployment
Unemployment
Natural rate hypothesis
Macroeconomics
Macroeconomic policy
Economic systems

Keywords

  • unemployment
  • natural rate hypothesis
  • hysteresis

Cite this

Cross, R. (2014). Unemployment: Natural Rate Epicycles of Hysteresis? (02 ed.) (pp. 1-20). Glasgow: University of Strathclyde.
Cross, Rod. / Unemployment : Natural Rate Epicycles of Hysteresis?. 02. ed. Glasgow : University of Strathclyde, 2014. pp. 1-20
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title = "Unemployment: Natural Rate Epicycles of Hysteresis?",
abstract = "This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by “structural” variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed. The implications for macroeconomic policy, and for the macroeconomics profession, are discussed.",
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Cross, R 2014 'Unemployment: Natural Rate Epicycles of Hysteresis?' 02 edn, University of Strathclyde, Glasgow, pp. 1-20.

Unemployment : Natural Rate Epicycles of Hysteresis? / Cross, Rod.

02. ed. Glasgow : University of Strathclyde, 2014. p. 1-20.

Research output: Working paperDiscussion paper

TY - UNPB

T1 - Unemployment

T2 - Natural Rate Epicycles of Hysteresis?

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N1 - Published as a paper within the Discussion Papers in Economics, No. 14-02 (2014)

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N2 - This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by “structural” variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed. The implications for macroeconomic policy, and for the macroeconomics profession, are discussed.

AB - This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by “structural” variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed. The implications for macroeconomic policy, and for the macroeconomics profession, are discussed.

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KW - natural rate hypothesis

KW - hysteresis

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PB - University of Strathclyde

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Cross R. Unemployment: Natural Rate Epicycles of Hysteresis? 02 ed. Glasgow: University of Strathclyde. 2014 Feb, p. 1-20.