Path Dependency, Hysteresis and Macrodynamics
61 Pages Posted: 24 Nov 2008 Last revised: 20 Jan 2009
Date Written: November 7, 2008
Abstract
This chapter explores the meaning and application of concepts of path dependency in macrodynamics, with a particular focus on hysteresis. It is argued that hysteresis is a particular type of (rather than a synonym for) path dependency, and that the concept emerges from features of the adjustment dynamics of economic systems, rather than the non-uniqueness of equilibrium. Distinctions are made between stating (or assuming) hysteresis, characterizing hysteresis, and providing a model of hysteresis, and concrete examples of appeals to hysteresis in macrodynamic analysis are used to illustrate these distinctions. Finally, a case is made for retaining linear unit/zero root models of hysteresis in macrodynamic analysis, as a useful first approximation and alternative to traditional equilibrium analysis.
Keywords: hysteresis, path dependency, macrodynamics
JEL Classification: E10
Suggested Citation: Suggested Citation