Unemployment: natural rate epicycles or hysteresis?

This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by “structural” variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed. The implications for macroeconomic policy, and for the macroeconomics profession, are discussed.

Consumption Expenditures in Economic Impact Studies: An Application to University Students

This paper examines how appropriately to attribute economic impact to consumption expenditures. Consumption expenditures are often treated as either wholly endogenous or wholly exogenous, following a distinction from Input-Output analysis. For many applications, such as those focusing on the impacts of tourism or benefits systems, such binomial assumptions are not satisfactory. We argue that consumption is neither wholly endogenous nor wholly exogenous but that the degree of this distinction is rather an empirical matter. We set out a general model for the treatment of consumption expenditures and illustrate its application through the case of university students. We examine individual student groups and how the impacts of students at particular institutions. Furthermore we take into account the binding budget constraint of public expenditures (as is the case for devolved regions in the UK)and examine how this affects the impact attributed to students' consumption expenditures.