Demand shocks can have permanent impact on US economy – Fed paper
Authors find hysteresis is an important driver of longer-term growth trend in US
Demand shocks can permanently alter the course of growth in the US, research published by the Federal Reserve finds.
Authors Francesco Furlanetto et al question the “traditional view” that demand shocks have only a temporary impact on the long-run growth trend.
The working paper is based on macroeconomic indicators for the US from 1983 to 2019. The authors test for the effects of a supply shock and a “more novel demand shock”.
“We find that demand shocks with potentially permanent effects do
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