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Monetary policy, market structure and the income shares in the U.S

Listed author(s):
  • Bitros, George C.

This paper investigates whether the monetary policy and the market structure have anything to do with the declining share of labor in the U.S in recent decades. For this purpose: (a) a dynamic general equilibrium model is constructed and used in conjunction with data over the 2000-2014 period to compute the income shares; (b) the latter are compared to those reported from various sources for significant differences, and (c) the influence of monetary policy is subjected to several statistical tests. With comfortable margins of confidence it is found that the interest rate the Federal Open Market Committee charges for providing liquidity to the economy is related positively with the shares of labor and profits and negatively with the share of interest. What these findings imply is that, by moving opposite to the equilibrium real interest rate, the relentless reduction of the federal funds rate since the 1980s may have contributed to the decline in the equilibrium share of labor, whereas the division of the equilibrium non-labor income between interest and profits has been evolving in favor of the former, because according to all indications the stock of producers’ goods in the U.S has been aging. As for the market structure, it is found that even if firms had and attempted to exercise monopoly power, it would be exceedingly difficult to exploit it because the demand of consumers’ goods is significantly price elastic. Should these results be confirmed by further research, they would go a long way towards explaining the deceleration of investment and economic growth.

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File URL: https://mpra.ub.uni-muenchen.de/70847/1/MPRA_paper_70847.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 70847.

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Date of creation: 15 Apr 2016
Handle: RePEc:pra:mprapa:70847
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  1. Bitros, G.C. & Flytzanis, E.G., 2001. "Towards A General Theory of Real Capital," Athens University of Economics and Business 126, Athens University of Economics and Business, Department of International and European Economic Studies.
  2. Willem H. Buiter, 2007. "Is Numerairology the Future of Monetary Economics? Unbundling numeraire and medium of exchange through a virtual currency and a shadow exchange rate," NBER Working Papers 12839, National Bureau of Economic Research, Inc.
  3. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  4. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
  5. George C. Bitros, 2015. "Thinking Ahead of the Next Big Crash," Cato Journal, Cato Journal, Cato Institute, vol. 35(1), pages 67-93, Winter.
  6. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
  7. Franklin M. Fisher & Robert M. Solow & James M. Kearl, 1977. "Aggregate Production Functions: Some CES Experiments," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 305-320.
  8. Benjamin Bridgman, 2014. "Is Labor's Loss Capital's Gain? Gross versus Net Labor Shares," BEA Working Papers 0114, Bureau of Economic Analysis.
  9. George Bitros, 2008. "Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 21(4), pages 301-328, December.
  10. L. R. Klein & R. F. Kosobud, 1961. "Some Econometrics of Growth: Great Ratios of Economics," The Quarterly Journal of Economics, Oxford University Press, vol. 75(2), pages 173-198.
  11. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
  12. Heinz D. Kurz, 2015. "Capital Theory, Crises, and Business Cycles: The Triangular Debate between Hayek, Keynes, and Sraffa," Journal of Reviews on Global Economics, Lifescience Global, vol. 4, pages 186-191.
  13. Jesus Felipe & Franklin M. Fisher, 2003. "Aggregation in Production Functions: What Applied Economists should Know," Metroeconomica, Wiley Blackwell, vol. 54(2-3), pages 208-262, 05.
  14. Luci Ellis & Kathryn Smith, 2010. "The Global Upward Trend in the Profit Share," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(3), pages 231-256.
  15. Harrison, Ann, 2005. "Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence," MPRA Paper 39649, University Library of Munich, Germany.
  16. George C. Bitros & Elias Flytzanis, 2004. "Operating policies in a model with terminal scrapping," Macroeconomics 0411008, EconWPA.
  17. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
  18. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, June.
  19. Stiglitz, Joseph E, 1974. "The Cambridge-Cambridge Controversy in the Theory of Capital: A View from New Haven: A Review Article," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 893-903, July/Aug..
  20. Gianaris, Nicholas V., 1969. "The instability of the incremental capital-output ratio," Socio-Economic Planning Sciences, Elsevier, vol. 3(2), pages 119-125, August.
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