A note on the macroeconomic modelling of unemployment hysteresis

Abstract

In macroeconomics, unemployment hysteresis typically arises as a special case of an otherwise stationary model. Imposing hysteresis is often equivalent to imposing a random walk, i.e. a situation in which the permanent fraction of a shock is equal to unity. This paper develops a more general linear model of unemployment hysteresis in which permanency is viewed as a continuous, rather than a discrete, phenomenon. Stationarity arises as a special case.