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.