Various concepts of hysteresis applied in economics

Abstract

Different types of hysteresis are applied in order to describe persistence phenomena in micro- and macroeconomics. On the microeconomic level sunk adjustment costs generate 'genuine' hysteresis where temporary exogenous shocks lead to switches between different 'branches' of an entire input-output-relation (i.e. 'multibranch non-linearity'). The shape of the hysteresis loop changes when an adequate aggregation towards a macroeconomic relation is conducted over heterogeneous micro elements. Hysteresis-relations are based on a local structural instability in the case of a branch-to-branch-transition. However, the persistence characteristics of first order difference (differential) equations with unit (zero) roots - which are based on a global indifference-instability - are in economics commonly labelled as 'hysteresis' as well. JEL Classification: C62.