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Medium-term Fluctuations and the "Great Ratios" of Economic Growth

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  • Christian Groth

    (Department of Economics, Copenhagen University)

  • Jakob B. Madsen

    (Department of Economics, Monash University)

Abstract

Evidence for the OECD countries show that the “great ratios”, such as the unemployment rate, factor shares, Tobin’s q and the investment-capital ratio, fluctuate significantly on medium-term frequencies of 10-40 years duration. To explain these medium-term fluctuations, we establish a macro-dynamic model where the q-theory of investment is combined with sluggish real-wage adjustment in the labour market. In this framework, responses to shocks show persistence and amplification. A high degree of real-wage rigidity combined with a low elasticity of factor substitution leads to damped internal oscillations and hump-shaped impulse-response functions.

Suggested Citation

  • Christian Groth & Jakob B. Madsen, 2013. "Medium-term Fluctuations and the "Great Ratios" of Economic Growth," Discussion Papers 13-16, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:1316
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    References listed on IDEAS

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    Cited by:

    1. Asada, Toichiro & Flaschel, Peter & Greiner, Alfred & Proaño, Christian R., 2011. "Sustainable capitalism: Full-employment flexicurity growth with real wage rigidities," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 248-264, March.
    2. Peter Flaschel & Alfred Greiner, 2010. "Dissent-Driven Capitalism, Flexicurity Growth and Environmental Rehabilitation," Chapters,in: Handbook of Alternative Theories of Economic Growth, chapter 16 Edward Elgar Publishing.
    3. Jakub Growiec & Peter McAdam & Jakub Muck, 2018. "On the Optimal Labor Income Share," Working Papers 2018-031, Warsaw School of Economics, Collegium of Economic Analysis.
    4. Peter Flaschel & Alfred Greiner, 2011. "A Future for Capitalism," Books, Edward Elgar Publishing, number 14241.
    5. Flaschel, Peter & Greiner, Alfred, 2012. "Flexicurity Capitalism: Foundations, Problems, and Perspectives," OUP Catalogue, Oxford University Press, number 9780199751587.

    More about this item

    Keywords

    Medium-term cycles; Tobin’s q; real-wage Phillips curve; elasticity of factor substitution; endogenous oscillations;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G1 - Financial Economics - - General Financial Markets
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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