The article shows that recessions can have big welfare costs due to hysteresis, which lowers potential output. The New Keynesian model with hysteresis predicts much higher costs compared to the model without it. The study found that hysteresis can increase the welfare costs of a recession by a factor of 121. This contradicts previous claims that only changes in long-term consumption growth affect welfare costs. Stabilization policies should be strong in response to recessions because of hysteresis.