Do menu costs lead to hysteresis in aggregate output? The experiences of some agent-based simulations

Abstract The transitory shock of the financial crisis 2008 pushed most economies to permanently lower-level growth paths than those prevalent before crisis, which can be considered as a manifestation hysteresis. It is well known that some fixed adjustment costs lead hysteresis in aggregate output. This paper investigates within an agent-based model, whether price (menu costs) same result. Hysteresis emerges simple variants model independently firms being assumed boundedly or perfectly rational, but these fit empirical data poorly. model's performance improved by assuming are hit idiosyncratic productivity shocks, shocks eliminate generated menu costs. However, survives even their presence, if it demand-supply interactions, i.e., positive feedbacks from output gap potential Our conclusion one would like serve at least relevant explanation for hysteretic dynamics has find alternative assumption replace mechanism assure good model.