Tag: Hysteresis

What is hysteresis?

Posted on by Rhys Williams

I recently wrote an article on the situation in Greece, and mentioned the effects of hysteresis which I will expand upon in this blog article.

Hysteresis is a theory developed by the Keynesians to explain why laissez-faire economic policy may be damaging in the long run. Neoclassicalists would argue that during an economic downturn, when an external shock causes demand to fall, wages should be allowed to fall which would increase the international competitiveness of the economy so that exports can grow to increase demand and provide a boost to the economy fueling further growth until the economy is out of the slump and growing again. [...]

The Economic Implications of a Greek Default

Posted on by Rhys Williams

A lot of media attention has recently been focusing on the potential for a Greek default and exit from the Eurozone, and last Tuesday night Greece failed to repay its IMF loan, becoming the first developed country to default with the IMF. Last Sunday Greece also imposed capital controls to prevent capital flight from occurring. Capital flight is the situation whereby residents and firms move money out of a country because they are scared that they will otherwise lose it. This may be due to government taxation, requisition (some Cypriots who had money deposited with banks lost 25% which was taken by the government through an emergency tax in 2013) or fear of bank collapse. [...]