Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246120 
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 13/2020
Publisher: 
Norges Bank, Oslo
Abstract: 
In this paper we extend the standard Blanchard-Quah decomposition to enable fluctuations in aggregate demand to have a long-run impact on the productive capacity of the economy through hysteresis effects. These demand shocks are found to be quantitatively important in the US, in particular if the Great Recession is included in the sample. Demand-driven recessions lead to a permanent decline in employment while output per worker is largely unaffected. The negative impact of a permanent decline in investment (including R&D investment) on productivity is compensated by the fact that the least productive workers are disproportionately hit by the shock and exit the labor force.
Subjects: 
Hysteresis
Structural Vector Autoregressions
Sign restrictions
Longrun restrictions
Productivity
JEL: 
C32
E24
E32
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-167-9
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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