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

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  • Ricardo A. Araújo

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  • Marwil J. Dávila-Fernández

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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.

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  • 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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    Cited by:

    1. Mark Setterfield, 2021. "Whatever happened to the 'Goodwin pattern'? Profit Squeeze Dynamics in the Modern American Labour market," Working Papers 2101, New School for Social Research, Department of Economics, revised Apr 2021.
    2. Robert A. Blecker & Mark Setterfield, 2020. "On multi-sector and multi-technique models, production functions and Goodwin cycles: a reply to Libman," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 17(3), pages 295-306, November.

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    More about this item

    Keywords

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

    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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