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 nonuniqueness of equilibrium. Distinctions are made between stating (or asserting) hysteresis, characterizing hysteresis, and providing a model of hysteresis. 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.
An earlier version of this paper was presented at the 5th International Conference Developments in Economic Theory and Policy, Universidad del Pais Vasco, Bilbao, 10–11 July, 2008. I would like to thank conference participants — and in particular, Dany Lang — for their helpful comments. Any remaining errors are, of course, my own.
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Setterfield, M. (2009). Path Dependency, Hysteresis and Macrodynamics. In: Arestis, P., Sawyer, M. (eds) Path Dependency and Macroeconomics. International Papers in Political Economy Series. Palgrave Macmillan, London. https://doi.org/10.1057/9780230251090_2
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DOI: https://doi.org/10.1057/9780230251090_2
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