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Title: Hysteresis and Economic Fluctuations (Spain, 1970-94)

Author(s): Juan J. Dolado and J David L�pez-Salido

Publication Date: February 1996

Keyword(s): Hysteresis, Recessions, Shocks and Structural VAR

Programme Area(s): Human Resources

Abstract: This paper uses long-run restrictions on a three-variable system containing output growth, real wage growth and the differenced unemployment rate, to isolate three 'structural' shocks which drove business cycle fluctuations in Spain during 1970-94. These shocks are interpreted as aggregate demand, labour demand and labour supply disturbances in a framework where there is unit-root persistence in the unemployment rate. Our basic finding is that disinflationary policies in an economy suffering from high persistence can become very costly in terms of unemployment, unless supply-side reforms, aimed at eliminating the sources of persistence, are implemented.

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Bibliographic Reference

Dolado, J and L�pez-Salido, J. 1996. 'Hysteresis and Economic Fluctuations (Spain, 1970-94)'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1334