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Hysteresis and fiscal policy during the Global Crisis

Fatás, Antonio, Summers, Lawrence,  (2016), “Hysteresis and fiscal policy during the Global Crisis”, VoxEu, 12 October

Conventional wisdom on supply and demand suggests that demand shocks are cyclical or transitory, and that only technology shocks are responsible for trend changes. This column argues that cyclical events can have permanent effects on demand, and therefore GDP. It is time for policymakers to start considering the possibility of hysteresis seriously.

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