The Mathematical Institute, University of Oxford, Eprints Archive

Memory of recessions

Cross, R. and McNamara, H. and Kalachev, L. and Pokrovski, A. (2012) Memory of recessions. Journal of Post Keynesian Economics .

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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.

Item Type:Article
Subjects:D - G > General
Research Groups:Oxford Centre for Collaborative Applied Mathematics
ID Code:1573
Deposited By:Peter Hudston
Deposited On:27 Jul 2012 08:36
Last Modified:27 Jul 2012 08:36

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