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

Listed author(s):
  • Christian Groth

    (Department of Economics, Copenhagen University)

  • Jakob B. Madsen

    (Department of Economics, Monash University)

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.

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File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2013/1316.pdf/
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 13-16.

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Length: 48 pages
Date of creation: 2013
Handle: RePEc:kud:kuiedp:1316
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