Economic Hysteresis and its Modeling

Abstract

Hysteresis is treated as a history dependent branching, and the use of the classical Preisach model for the analysis of macroeconomic hysteresis is first discussed. Then, a new Preisach-type model is introduced as a macroeconomic aggregation of more realistic microeconomic hysteresis than in the case of the classical Preisach model. It is demonstrated that this model is endowed with a more general mechanism of branching and may account for the continuous evolution of the economy and its effect on hysteresis. Furthermore, it is shown that the sluggishness of economic recovery is an intrinsic manifestation of hysteresis branching.