Chapters from Economic Theories on Hysteresis

Abstract

Since the economic and financial crisis of 2008, proposals on economic policy devised on the basis of hysteresis have become the focus of economic sciences. This study presents some theories on the 2008 crisis and subsequent hysteresis, as well as related economic policy proposals. The crisis and hysteresis acted as theoretical catalysts and, by expanding the boundaries of previous main theories, sometimes produced significant results, and continue to do so to this very day. Hysteresis is also significant from the point of view of the Hungarian economy, as the crisis has hit the country particularly hard. However, as a result of the post-2010 economic policy shift, the government has been able to rebalance and put the economy back on a growth path. This can also be called a positive hysteresis, as the economy is growing steadily and faster than expected based on this trend. 1

W-shaped Recovery in the Two Waves of the Coronavirus Pandemic

“…An economic growth that lags behind the pre-crisis trend is called hysteresis in academic literature. Posgay et al (2019) point out that reduced spending in the wake of excessive indebtedness, the early controlling of fiscal expansion, the inappropriate coordination of monetary and fiscal policy and the lack of international coordination lead to hysteresis. As a result of the uncertain economic environment, the willingness to invest declines and cautiousness strengthens.…”