Luca Fornaro on Hysteresis, Endogenous Growth, and Aggregate Demand Policies
Macro Musings with David Beckworth
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Hysteresis and Economic Growth
This chapter delves into the relationship between business cycles and trend growth, focusing on the concept of hysteresis within endogenous growth models. It uses a power lifting analogy to explain how economic downturns can impair long-term productivity and growth potential, with implications for skill accumulation and investment. The discussion highlights how weak demand can lead to stagnation traps, emphasizing the need for policies that address these persistent economic challenges.
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