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Estimated non-linearities and multiple equilibria in a model of distributive-demand cycles

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  • Daniele Tavani
  • Peter Flaschel
  • Lance Taylor

Abstract

We introduce the results of a non-parametric estimate of the US wage-Phillips Curve into a simplified version of the model of the wage-price spiral by Flaschel and Krolzig (2008). Making use of Okun’s law, the non-linearity in the wage inflation-employment relation translates into a non-linearity in the so-called ‘distributive curve’ of the economy. Exploiting the observed non-linearity in extending an otherwise standard demand-distribution model (Taylor 2004), we provide a dynamical analysis both in wage-led and profit-led effective demand regimes. In a profit-led scenario, shown to be the empirically relevant case for the US economy, there are two stable equilibria of Goodwin (1967) growth cycle type, identified as a stable depression and a stable boom, and a saddle-path stable equilibrium in between them. Both stable steady states are surrounded by trajectories that cycle counterclockwise around their basins of attraction. The obtained type of growth fluctuations can be verified by a long phase cycle estimation for the US economy using a method developed by Kauermann, Teuber and Flaschel (2008).

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File URL: http://hdl.handle.net/10.1080/02692171.2010.534441
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 25 (2011)
Issue (Month): 5 (October)
Pages: 519-538

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Handle: RePEc:taf:irapec:v:25:y:2011:i:5:p:519-538

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Cited by:
  1. Sasaki, Hiroaki & Matsuyama, Jun & Sako, Kazumitsu, 2013. "The macroeconomic effects of the wage gap between regular and non-regular employment and of minimum wages," Structural Change and Economic Dynamics, Elsevier, vol. 26(C), pages 61-72.
  2. David Kiefer & Codrina Rada, 2013. "Profit maximizing goes global: the race to the bottom," Working Paper Series, Department of Economics, University of Utah 2013_05, University of Utah, Department of Economics.
  3. Greg Hannsgen, 2012. "Fiscal Policy, Unemployment Insurance, and Financial Crises in a Model of Growth and Distribution," Economics Working Paper Archive wp_723, Levy Economics Institute.
  4. Hiroaki Sasaki & Ryunosuke Sonoda & Shinya Fujita, 2012. "International Competition and Distributive Class Conflict in an Open Economy Kaleckian Model," Discussion papers e-12-005, Graduate School of Economics Project Center, Kyoto University.
  5. Hiroaki Sasaki & Jun Matsuyama & Kazumitsu Sako, 2012. "The Macroeconomic Effects of the Wage Gap between Regular and Non-Regular Employment and Minimum Wages," Discussion papers e-12-003, Graduate School of Economics Project Center, Kyoto University.
  6. Storm, Servaas & Naastepad, C.W.M, 2012. "Wage-led or profit-led supply : wages, productivity and investment," ILO Working Papers 470930, International Labour Organization.
  7. Tavani, Daniele, 2012. "Wage bargaining and induced technical change in a linear economy: Model and application to the US (1963–2003)," Structural Change and Economic Dynamics, Elsevier, vol. 23(2), pages 117-126.

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