Play-Hysteresis in the Joint Dynamics of Employment and Investment

• Type: Article in International Scientific Journal
• Date: 2022

Authors

Paulo Ricardo Mota (Author) FEP; vasconcelos, pb (Author) FEP

Journal

Title: Mathematics in Computer Science

Vol. 16

Pages: 1-5

ISSN: 1661-8270

Publisher: Springer Nature

Indexing

ISI Web of Knowledge - 1 Citation

Other information

Authenticus ID: P-00W-DQT

DOI: 10.1007/s11786-022-00523-w

Abstract (EN): The slow recovery of many developed economies to the recent financial crisis, and the largest fall in aggregate demand since WWII caused by the COVID-19 Pandemic with its foreseeable negative and persistent effects on the aggregate supply, has generated renewed interest in the subject of hysteresis. The presence of significant hysteresis effects has important theoretical and policy implications. First, there is no unique and predetermined long-run equilibrium level of aggregate employment, as the equilibrium is permanently changed by temporary shocks. Second, as the economic system is not self-adjusting, substantial, timely, and sustained expansionary monetary and fiscal policy should be applied to mitigate the impact of shocks, including the temporary ones. Although it is not possible to quantify hysteresis effects in real time, we can use historical data to shed some light on the possible long-term economic consequences of the COVID-19 pandemic. For that purpose, we use the linear play-hysteresis model in the context of two equation system to analyses the join hysterical dynamics of aggregate employment and investment. We implement the model empirically by means of a new algorithm for the simultaneous equations system applied to Portuguese data that separates the effects of large and small changes in aggregate demand on aggregate employment and investment using an endogenous determined switching parameter as reference.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 13