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Belke, A. Unemployment as a Target for Central Banks? The Case of Hysteresis. Credit and Capital Markets – Kredit und Kapital, 51(4), 587-619. https://doi.org/10.3790/ccm.51.4.587
Belke, Ansgar "Unemployment as a Target for Central Banks? The Case of Hysteresis" Credit and Capital Markets – Kredit und Kapital 51.4, 2018, 587-619. https://doi.org/10.3790/ccm.51.4.587
Belke, Ansgar (2018): Unemployment as a Target for Central Banks? The Case of Hysteresis, in: Credit and Capital Markets – Kredit und Kapital, vol. 51, iss. 4, 587-619, [online] https://doi.org/10.3790/ccm.51.4.587

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Unemployment as a Target for Central Banks? The Case of Hysteresis

Belke, Ansgar

Credit and Capital Markets – Kredit und Kapital, Vol. 51 (2018), Iss. 4 : pp. 587–619

1 Citations (CrossRef)

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Author Details

Prof. Dr. Ansgar Belke, University of Duisburg-Essen (UDE), Essen; Centre for European Policy Studies (CEPS); Brussels & Institute for the Study of Labor (IZA), Bonn, Essen and Brussels. Original version March 2018, revised version August 2018. Contribution to the Radein CCM Special Issue.

Cited By

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    Latin American Research Review, Vol. 59 (2024), Iss. 2 P.315

    https://doi.org/10.1017/lar.2023.57 [Citations: 1]

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Abstract

One of the most interesting questions for policymakers which have emerged from the financial crisis deals with the strength of links between the demand and supply sides of the economy. The traditional view that only cyclical policies influence the former, and structural policies the latter has been challenged in two ways: by the observation that long periods of weak demand can lead to rising structural unemployment and a permanently lower capital stock – the hysteresis effects; and by the claim that stronger demand fueled by monetary policy might be able to reverse such effects.

However, the Blanchard and Summers type of hysteresis approach should not be taken one-to-one into recommendations for monetary policy. Merely referring to the hard form of “reverse hysteresis” and pressing for bold counter-cyclical monetary (and fiscal) policies to cope with hysteretic unemployment is neither necessary nor sufficient. Instead, subtler forms of hysteresis should be taken into account. They leave some room for monetary policy to maneuver, more complex way. If long-term unemployment is stagnating. Over the whole circle, even a contractionary monetary policy stance can be considered as an option. Taking hysteries as a starting point, the paper discusses policy complementarities of different kinds and ideology-driven politicial unemployment cycles. It also discusses the “two-handed approach” relying both monetary policy and structural reforms.