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Some new insights on the empirics of Goodwin’s growth-cycle model

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  • Ricardo A. Araújo

    ()

  • Marwil J. Dávila-Fernández

    ()

Abstract

Vector Autoregressive (VAR) models have been used for a long time now to study profit-squeeze cycles, most of the time using problematic Hodrick-Prescott (HP) filtered time series. In a recent paper, Hamilton (2018) has provided a simple alternative that overcomes the main drawbacks of the HP procedure. In order to evaluate the empirical relevance of the profit-squeeze mechanism, we compare both methodologies using quarterly data for the United States from 1948-67 to 2016. Furthermore, we present an extension of Goodwin's (1967) growth-cycle model that includes employment rates, income distribution, and capacity utilisation as endogenous variables. We show analytically that the system always admits a family of periodic solutions. The model is estimated econometrically using the Autoregressive Distributed Lag (ARDL) approach. Through numerical simulations and making use of our estimations, we confirm that fluctuations are persistent and bounded.

Suggested Citation

  • Ricardo A. Araújo & Marwil J. Dávila-Fernández, 2018. "Some new insights on the empirics of Goodwin’s growth-cycle model," Department of Economics University of Siena 790, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:790
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    References listed on IDEAS

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    Keywords

    Distributive cycles; Growth-cycle; HP ?lter; VAR; ARDL.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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