Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265328 
Year of Publication: 
2022
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 12/2022
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We find that deep contractions have highly persistent scarring effects, depressing the level of GDP at least a decade hence. Drawing on a panel of 24 advanced and emerging economies from 1970 to the present, we show that these effects are nonlinear and asymmetric: there is no such persistence following less severe contractions or large expansions. While scarring after financial crises is well known, it also occurred after the deep contractions of the 1970s and 1980s that followed energy price shocks and restrictive monetary policy to combat high inflation. These results are very robust and have important implications for policy making and macro modelling.
Subjects: 
Hysteresis
nonlinearity
financial crises
monetary policy
oil shocks
JEL: 
E32
E37
G01
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-418-5
Document Type: 
Working Paper

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