Economic Hysteresis and Its Mathematical Modeling

TL;DR

This paper introduces a new Preisach-type model for macroeconomic hysteresis that captures continuous economic evolution and explains sluggish recovery as an intrinsic hysteresis effect.

Contribution

It presents a novel Preisach-type model that improves microeconomic realism and accounts for continuous economic changes and recovery sluggishness.

Findings

The new model generalizes hysteresis branching mechanisms.

It explains economic recovery delays as an intrinsic hysteresis feature.

The model aligns with macroeconomic hysteresis observations.

Abstract

Hysteresis is treated as a history dependent branching, and the use of the classical Preisach model for the analysis of macroeconomic hysteresis is first discussed. Then, a new Preisach-type model is introduced as a macroeconomic aggregation of more realistic microeconomic hysteresis than in the case of the classical Preisach model. It is demonstrated that this model is endowed with a more general mechanism of branching and may account for the continuous evolution of the economy and its effect on hysteresis. Furthermore, it is shown that the sluggishness of economic recovery is an intrinsic manifestation of hysteresis branching.