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Financial and nonfinancial profitability across time and frequencies

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  • Ivan Mendieta-Muñoz, Daniel Ossa

Abstract

We contribute to the study of the conceptualization and measurement of the rate of profit of the financial and nonfinancial sectors. We assemble a new data set for the US economy to construct measures of the profit rate for each sector: the return on equity, the return on assets, and the shareholder's dividend yield. We study how the periodic components of the measures of profitability in each sector have changed over time, how these have been correlated at different frequencies, and what has been the evolution of such correlations. We find that the dominant correlation between the measures of profitability across sectors is located at business cycle frequencies, and that there has been a shift in the lead-lag relationship between financial and nonfinancial profitability: from 1970 to the mid-1990s, profitability in the nonfinancial sector led profitability in the financial sector; while since the mid-1990s the latter has led the former.

Suggested Citation

  • Ivan Mendieta-Muñoz, Daniel Ossa, 2022. "Financial and nonfinancial profitability across time and frequencies," Working Paper Series, Department of Economics, University of Utah 2022_02, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2022_02
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    File URL: https://economics.utah.edu/research/publications/2022_02.pdf
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    Keywords

    profitability; financial corporations; nonfinancial corporations; business cycles; financialization. JEL Classification: B50; C32; E11; E32; G20;
    All these keywords.

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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