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Working Paper
Searching for Hysteresis
We search for the presence of hysteresis, which we dene as aggregate demand shocks that have a permanent impact on real GDP, in the U.S., the Euro Area, and the U.K. Working with cointegrated structural VARs, we nd essentially no evidence of such effects. Within a Classical statistical framework, it is virtually impossible to detect such shocks. Within a Bayesian context, the presence of these shocks can be mechanically imposed upon the data. However, unless a researcher is willing to impose the restriction that the sign of their long-run impact on GDP is the same for all draws, which amounts ...