Theory of Macroeconomic Hysteresis

This book deals with the mathematical theory of macroeconomic hysteresis, which is the theory of aggregation of microeconomic hysteresis. This aggregation results in the emergence of new economic phenomena. Indeed, microeconomic sunk cost hysteresis is usually represented by relatively simple hysteresis loops. This type of hysteresis has a local (i.e., Markovian) memory, and in the economic literature it is often referred to as weak hysteresis. It turns out that macroeconomic aggregation results in the formation of discrete memory of past economic shocks. As a consequence, this aggregation elevates microeconomic hysteresis to the level of non-Markovian history-dependent multibranch hysteresis. In the economic literature, this history-dependent multi-branch hysteresis is referred to as strong hysteresis.In the book, the basic properties of macroeconomic hysteresis are mathematically studied. It is demonstrated that certain important properties of macroeconomic hysteresis (such as history-dependent branching, erasure effects of some past economic shocks, geometric features of macroeconomic hysteresis loops, etc.) are insensitive to specific structures of microeconomic hysteresis subject to aggregation. This suggests that the above properties may be viewed as universal. Furthermore, it is pointed out that these aggregation models have the prediction power of future macroeconomic branching, which may be employed for the prediction of future economic evolution.