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Economic Brief

Feb. 4, 2021

Richmond Fed Brief Finds No Hysteresis in US Economic Data

Conducting a statistical analysis of U.S. economic data, economists from the Richmond Fed and the University of Bern find no evidence of hysteresis, the idea that seemingly temporary economic shocks can have permanent effects.

The economists summarize their analysis in the Richmond Fed’s latest Economic Brief, which notes that if hysteresis were a quantitatively important phenomenon, it would significantly alter the Federal Reserve’s approach to monetary policy. In a downturn, the Fed would have to be more aggressive to prevent hysteresis in the labor market. In better times, it would make sense to “run the economy hot” to permanently reduce the unemployment rate. But such considerations remain hypothetical because the authors find no evidence of hysteresis in the United States.

The Richmond Fed’s Economic Brief series provides essays on economic issues and trends. Sign up to receive an email notification when a new essay is posted.

As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District — including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia — to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.


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