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The empirical relevance of Goodwin’s business cycle model for the US economy

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  • Tarassow, Artur

Abstract

The paper attempts to verify Richard Goodwin's (1967) endogenous business cycle theory which states that the driving forces behind fluctuations are class struggles between capitalists and workers about income distribution. Based on a Marxian profit-led model, non-linear differential equations lead to endogenous cycles in the wage-share-employment-space which can be observed empirically. Applying a bivariate vector autoregressive model we analyze the relationship between real unit labor costs and the employment rate for the US economy over a period from 1948:1 to 2006:4. Granger-causality tests, orthogonalized impulse response functions and forecast error variance decomposition are conducted for the raw data as well as the cyclical components of the Hodrick-Prescott and Baxter-King filter methods. We verify the profit-led character of the US goods market and find that income distribution is driven by labor market dynamics.

Suggested Citation

  • Tarassow, Artur, 2010. "The empirical relevance of Goodwin’s business cycle model for the US economy," MPRA Paper 21012, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21012
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    References listed on IDEAS

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    2. Paul Beaudry & Bernd Lucke, 2010. "Letting Different Views about Business Cycles Compete," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 413-455, National Bureau of Economic Research, Inc.
    3. Jonathan P. Goldstein, 1999. "Predator–Prey Model Estimates of the Cyclical Profit Squeeze," Metroeconomica, Wiley Blackwell, vol. 50(2), pages 139-173, June.
    4. Bénédicte Vidaillet & V. d'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
    5. Nelson H. Barbosa‐Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy—A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, July.
    6. Engelbert Stockhammer & Robert Stehrer, 2011. "Goodwin or Kalecki in Demand? Functional Income Distribution and Aggregate Demand in the Short Run," Review of Radical Political Economics, Union for Radical Political Economics, vol. 43(4), pages 506-522, December.
    7. Paul Beaudry & Franck Portier, 2006. "Stock Prices, News, and Economic Fluctuations," American Economic Review, American Economic Association, vol. 96(4), pages 1293-1307, September.
    8. Harvie, David, 2000. "Testing Goodwin: Growth Cycles in Ten OECD Countries," Cambridge Journal of Economics, Oxford University Press, vol. 24(3), pages 349-376, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Konstantakis, Konstantinos N. & Michaelides, Panayotis G. & Mariolis, Theodore, 2018. "A non-linear post-Keynesian Goodwin-type endogenous model of the cycle for the USA," MPRA Paper 90036, University Library of Munich, Germany.
    2. Xiao Jiang, 2015. "Endogenous Cycles and Chaos in a Capitalist Economy: A Circuit of Capital Model," Metroeconomica, Wiley Blackwell, vol. 66(1), pages 123-157, February.
    3. Nikolaos Rodousakis, 2016. "Testing Goodwin’s Growth Cycle Disaggregated Models: Evidence from the Input-Output Tables of the Greek Economy for the years 1988-1997," Bulletin of Political Economy, Bulletin of Political Economy, vol. 10(2), pages 99-118, December.
    4. Sasaki, Hiroaki & Asada, Yasukuni, 2020. "Quantifying Goodwin Growth Cycles with Minimum Wage Shares," MPRA Paper 99926, University Library of Munich, Germany.
    5. Kerim Eser Afc{s}ar & Mehmet Ozyi~git & Yusuf Yuksel & Umit Ak{i}nc{i}, 2021. "Testing the Goodwin Growth Cycles with Econophysics Approach in 2002-2019 Period in Turkey," Papers 2106.02546, arXiv.org.
    6. Dögüs, Ilhan, 2017. "Rising wage dispersion between white-collar and blue-collar workers and market concentration: The case of the USA, 1966-2011," ZÖSS-Discussion Papers 62, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    7. Julio López Gallardo & Luis Antonio Reyes Ortiz, 2014. "Effective Demand in the Recent Evolution of the US Economy [Demande Effective dans l'évolution récente de l'économie des Etats-Unis]," Post-Print halshs-01907268, HAL.
    8. Hugo Bailly & Frédéric Mortier & Gaël Giraud, 2023. "Empirical analysis of a debt-augmented Goodwin model for the United States," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04139954, HAL.
    9. Dögüs, Ilhan, 2019. "Consumption dispersion between white-collar and blue-collar workers and rising market concentration in the USA: 1984-2011," ZÖSS-Discussion Papers 72, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    10. Hugo Bailly & Frédéric Mortier & Gaël Giraud, 2023. "Empirical analysis of a debt-augmented Goodwin model for the United States," Working Papers hal-04139954, HAL.
    11. Matheus R. Grasselli & Aditya Maheshwari, 2018. "Testing a Goodwin model with general capital accumulation rate," Papers 1803.01536, arXiv.org.

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    More about this item

    Keywords

    Business cycle; Goodwin; Econometrics; Marxian Economics; Post Keynesian Economics; Functional income distribution;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian

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