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

Setterfield, Mark, Path Dependency, Hysteresis and Macrodynamics (November 7, 2008). Available at SSRN: https://ssrn.com/abstract=1297529 or http://dx.doi.org/10.2139/ssrn.1297529

Mark Setterfield (Contact Author)

New School for Social Research ( email )

6 East 16th Street
New York, NY 10003
United States