Various Concepts of Hysteresis Applied in Economics

Different types of hysteresis are applied in order to describe persistence phenomena in micro- and macroeconomics. On the microeconomic level sunk adjustment costs generate "genuine" hysteresis where temporary exogenous shocks lead to switches between different "branches" of an entire input-output-relation (i.e. multibranch non-linearity"). The shape of the hysteresis loop changes when an adequate aggregation towards a macroeconomic relation is conducted over heterogeneous micro elements. Hysteresis-relations are based on a local structural instability in the case of a branch-to-branch-transition. However, the persistence characteristics of first order difference (differential) equations with unit (zero) roots - which are based on a global indifference-instability - are in economics commonly labelled as "hysteresis" as well