Arbeitspapier

Hysteresis, endogenous growth, and monetary policy

I provide evidence of substantial hysteresis (i.e., a situation in which temporary shocks have longrun effects) from monetary shocks on two sources of endogenous growth; human capital and technological adoption. This contribution is the first to test for the presence of this phenomenon in direct measures of the supply-side potential of economies, instead of indirect measures, e.g., TFP. To estimate the effects of exogenous monetary policy shocks, I improve on the the trilemma identification by incorporating a mean-unbiased instrumental variable estimator. Results show substantial hysteresis in both human capital and technological adoption. Importantly, these are found to be asymmetric, as only contractionary shocks result in long lasting responses. I evaluate the aggregate importance of monetary hysteresis with a growth accounting exercise. Across the 17 countries in sample, the accumulated average cost of monetary hysteresis ranges between 1.2 and 9.6% of TFP, for human capital and the adoption of electricity, respectively.

Language
Englisch

Bibliographic citation
Series: Working Paper ; No. 348

Classification
Wirtschaft
Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Business Fluctuations; Cycles
Financial Markets and the Macroeconomy
Money and Interest Rates: Forecasting and Simulation: Models and Applications
Money Supply; Credit; Money Multipliers
International Monetary Arrangements and Institutions
International Policy Coordination and Transmission
International Business Cycles
Subject
hysteresis
money non-neutrality
endogenous growth

Event
Geistige Schöpfung
(who)
Amador, Sebastián
Event
Veröffentlichung
(who)
University of California, Department of Economics
(where)
Davis, CA
(when)
2022

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Amador, Sebastián
  • University of California, Department of Economics

Time of origin

  • 2022

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