Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249860 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2021-24
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
In this paper, we identify demand shocks that can have a permanent effect on output through hysteresis effects. We call these shocks permanent demand shocks. They are found to be quantitatively important in the United States, in particular when the sample includes the Great Recession. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, although output per worker is largely unaffected. We find strong evidence that hysteresis transmits through a rise in long-term unemployment and a decline in labor force participation and disproportionately affects the least productive workers.
Subjects: 
hysteresis
structural vector autoregressions
sign restrictions
long-run restrictions
employment
labor productivity
local projections
JEL: 
C32
E24
E32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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