Document Type
Discussion Paper
Publication Date
8-2023
CFDP Number
2382
CFDP Pages
69
Abstract
This paper studies stochastic hysteresis − general dependence on the path of past decisions and shocks. We develop a new methodology for deriving the explicit dynamics of optimal policy with path-dependence and show that stochastic hysteresis changes optimal policy both qualitatively and quantitatively. We showcase our methodology by deriving new results for optimal policy with stochastic habits, tipping points, robustness concerns, limited commitment, and dynamic private information.
Recommended Citation
Boerma, Job; Riabov, Georgii; and Tsyvinski, Aleh, "Policy with Stochastic Hysteresis" (2023). Cowles Foundation Discussion Papers. 2786.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2786