Hysteresis in Potential Output and Monetary Policy

Kienzler, Daniel; Schmid, Kai Daniel

doi:10.1111/sjpe.12050

Cited by 13 publications

(13 citation statements)

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“…Hysteresis brings important policy implications. Results of Kienzler and Schmid (2014) and Galí (2015) point to the adequacy of the dual mandate of the central bank in the presence of hysteresis. The empirical study by Ball (1999) then implies that passive economic policy during recessions brings high costs: not only temporarily but permanently high unemployment.…”

Section: Introductionmentioning

confidence: 91%

Unemployment Hysteresis in the Czech Republic

Bechný¹

2019

Prague Economic Papers

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This paper analyses the unemployment hysteresis in the Czech Republic on data from 1999 to 2016. The hysteresis is modelled by allowing for the impact of cyclical unemployment on the nonaccelerating inflation rate of unemployment. Models are estimated using the Bayesian approach and provide robust evidence in favour of the hysteresis. The estimates imply that in response to an increase in the cyclical unemployment of 1 percentage point, the non-accelerating inflation rate of unemployment increases by 0.18 percentage points.

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Section: Introductionmentioning

confidence: 91%

Unemployment Hysteresis in the Czech Republic

Bechný¹

2019

Prague Economic Papers

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“…There is a powerful and increasingly appreciated argument for a dependence of the NAIRU on actual unemployment: hysteresis (OECD 2014, Ball 2014, Kienzler/Schmid 2014, Logeay/Tober 2006. However, the EC does not model the NAIRU to include hysteresis effects -the endogeneity of the NAIRU results from the time series properties of the model.…”

Section: Resultsmentioning

confidence: 99%

The European Commission’s new NAIRU: Does it deliver?

Gechert¹,

Rietzler²,

Tober³

2015

Applied Economics Letters

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe NAIRU is a key component of potential output and as such critically affects output gap estimates. In May 2014, the European Commission changed its specification of the NAIRU for several countries and lowered its NAIRU estimates -in the case of Spain from 26.6% to 20.7% for 2015. To test the dependence of the new NAIRU on unemployment versus structural factors, we run counterfactual simulations applying one-standard deviation shocks to actual unemployment and to the structural variable -real unit labor costs. We find that the NAIRU in its new specification is still largely determined by actual unemployment. This calls in question both the interpretation of potential output estimates as barriers to more vigorous inflation-stable economic activity and the accuracy of structural deficit figures. AbstractThe NAIRU is a key component of potential output and as such critically affects output gap estimates. In May 2014, the European Commission changed its specification of the NAIRU for several countries and lowered its NAIRU estimates -in the case of Spain from 26.6% to 20.7% for 2015. To test the dependence of the new NAIRU on unemployment versus structural factors, we run counterfactual simulations applying one-standard deviation shocks to actual unemployment and to the structural variable -real unit labor costs. We find that the NAIRU in its new specification is still largely determined by actual unemployment. This calls in question both the interpretation of potential output estimates as barriers to more vigorous inflation-stable economic activity and the accuracy of structural deficit figures.

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“…As a result, policy implications are not crisp.". 4 While Kienzler and Schmid (2014) and Galí (2015) remark that if the hysteresis in unemployment exists, the dual mandate of the central bank will be sufficient to equilibrate the adverse shocks, Ball et al (1999) argues that the hysteresis will be resulted in high unemployment rates during recessions if the economic policies are not being relatively strong. 5 For more information on the other sources of hysteresis please see Pissarides (1992), Sessions (1994), Røed (1997), Ball (1999Ball ( , 2009, Roberts and Morin (1999), Blanchard (2003), Mikhail et al (2003), Skott (2005), Christopoulos andLeόn-Ledesma (2007), Stockhammer (2011).…”

Section: Orcidmentioning

confidence: 99%

Unemployment Hysteresis: Attached or Mismatched?

Özdemir¹

2021

SAEB

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This paper investigates the empirical significance of the unemployment problem whether it is structural or temporary on the basis of region-based, income-based and aggregate classifications of different countries for the yearly data from 1991 to 2018. In the first part of the paper, we examine the stationary position of unemployment series by way of using individual unit-root tests. Since the series are possibly subjected to the structural breaks, we also use additional approaches in which the effects of the break dates are checked in the analysis. Furthermore, we compare the initial findings of univariate unit-root tests along with panel unit-root testing procedures to critically assess the statistical validity of the hysteresis hypothesis in unemployment for given samples. The empirical findings imply that we cannot reject the hysteresis hypothesis for different classifications of the countries against the alternative of a natural rate even in the presence of structural breaks.

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Hysteresis in Potential Output and Monetary Policy

Cited by 13 publications

References 61 publications

Unemployment Hysteresis in the Czech Republic

Unemployment Hysteresis in the Czech Republic

The European Commission’s new NAIRU: Does it deliver?

Unemployment Hysteresis: Attached or Mismatched?

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