Template-Type: ReDIF-Paper 1.0
Author-Name: Rod Cross
Author-Name-First: Rod
Author-Name-Last: Cross
Author-Email: rod.cross@strath.ac.uk
Author-Workplace-Name: Department of Economics, University of Strathclyde
Title: Unemployment:  natural rate epicycles or 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.
Length: 21 pages
Creation-Date: 2014-02
Revision-Date: 
Publication-Status: Published
File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2014/14-02.pdf
File-Format: Application/pdf
Number: 1402
Classification-JEL: B22, C60, E12, E24, E31, NO1
Keywords: Unemployment, Natural Rate Hypothesis, Hysteresis
Handle: RePEc:str:wpaper:1402