Hysteresis Effects on Post-Crisis Economic Recovery: Recent Evidence from Central European Economies

Abstract

This study investigates hysteresis effects in unemployment within the European Union, with a particular focus on the Visegrád Four (V4) countries—Czech Republic, Hungary, Poland, and Slovakia—over the period 2000Q1 to 2024Q2. Using Eurostat quarterly unemployment data, we employ Augmented Dickey-Fuller tests with structural breaks for 2008–2009 and fractional integration methods to test the hysteresis hypothesis against the natural rate framework. The results provide little evidence of hysteresis: unemployment rates in both the EU27 and V4 countries are stationary once structural breaks are accounted for, with estimated fractional differencing parameters below unity. This implies that shocks such as the 2008 financial crisis and the COVID-19 pandemic had transitory rather than permanent effects on unemployment. Among the V4, all four countries display mean reversion, with differences in adjustment speeds but no persistence consistent with hysteresis. These findings support the natural rate hypothesis and suggest that unemployment dynamics in Central Europe are more resilient than often assumed. Policy implications emphasize the importance of stabilizing demand during downturns but indicate that long-term scarring in labor markets has been limited.