Hysteresis in economics is the persistence of an effect, after the initial factors that led to that event have been removed.
Hysteresis can occur following a recession when the unemployment rate continues to increase despite growth in the economy.
- Hysteresis costs
- "It is safer to err on the side of easing somewhat too much, and then if necessary tighten as capacity pressures eventually build, rather than ease too little and find the economy gets stuck in a low inflation rut with increased hysteresis costs."
- Michael Saunders, External Member of the Bank of England's Monetary Policy Committee (MPC), May 2020.