profit maximising goes global the race to the bottom we explore four decades of cyclical and long run dynamics in income distribution and economic activity for a panel of 13 oecd countries as measured by the wage share and output gap when modeled as predator prey dynamics economic activity in oecd countries is weakly profit led convergence to a long run equilibrium is relatively slow delaying the profit squeeze stage for many years our race to the bottom model suggests that the oecd countries have been engaged in undercutting each other s real unit labour costs an extension of the model shows that the long run equilibrium has been shifting south west towards a lower wage share it may even be that this race has the undesirable consequence of decreasing economic activity

investment specific technological changes the source of long run tfp fluctuations abstract technological innovations originating in the capital producing sector may spillover to the rest of the economy and enhance aggregate tfp in the long run this paper assesses the quantitative importance of investment specific technological changes in long run movements in aggregate tfp to this end we construct a two sector business cycle model where an ist diffusion process influences long run movements in aggregate tfp via spillover we then establish the linkage between the primitive shocks of the model and two shocks that can be identified from a var approach one shock accounting for the long run movement in aggregate tfp and the other accounting for the long run movement in the inverse of the relative price of investment we show analytically that the correlation of these two long run shocks can be fruitful in distinguishing the quantitative importance of ist innovations in long run movements in aggregate tfp using post war u s data we find that these two long run shocks identified by the mfev approach are almost perfectly collinear moreover these two shocks can explain a significant and surprisingly similar fraction of the business cycle fluctuations in other important macro variables our findings suggest that embodied technological changes are an important driver of long run movements in aggregate tfp

education and human capitalists in a classical marxian model of growth and distribution a simple classical marxian model of growth and distribution is developed in which education transforms low skilled workers into high skilled ones and in which high skilled workers save and hold capital therefore receiving both high skilled wages and profit income we analyse the implications for class divisions growth and distribution of the transformation of the modern capitalist economy from one in which the main class division is between capitalists who own capital and workers who only receive wage income into one in which education and human capital play a major role we show that an expansion in education can have a positive effect on growth but by altering the distribution of income rather than by fostering technological change and that it yields some changes in income distribution and the class structure of the capitalist economy but need not alter its fundamental features

an integrated approach to climate change income distribution employment and economic growth a demand driven growth model involving capital accumulation and the dynamics of greenhouse gas ghg concentration is set up to examine macroeconomic issues raised by global warming e g effects on output and employment of rising levels of ghg offsets by mitigation relationships among energy use and labor productivity income distribution and growth the economic significance of the jevons and other paradoxes sustainable consumption and possible reductions in employment and sources of instability and cyclicality implicit in the two dimensional dynamical system the emphasis is on the combination of biophysical limits and post keynesian growth theory and the qualitative patterns of system adjustment and the dynamics that emerge

the effects of permanent technology shocks on hours can the rbc model fit the var evidence abstract i show that a standard rbc model can be used to explain why hours per capita decrease in response to a permanent technology shock when hours enter a vector autoregressive var in first differences and why hours increase when hours enter in levels there are two parts to my argument first empirical evidence suggests that a positive permanent technology shock goes together with a persistent increase in the expected growth rate and the rbc model predicts this increase in the expected growth rate to have a downward effect on hours worked and can even result in a sizeable negative response of hours second first differencing hours in vars results in a considerable downward bias using the estimated parameters for the technology process i find i that the true model response of hours is positive and ii that when the var methodology is used with finite samples of simulated data then the hours response is negative positive when hours enter the var in first differences levels

emerging economies business cycles the role of commodity terms of trade news abstract recent empirical work has challenged the hypothesis that terms of trade shocks are an important source of cyclical fluctuations in emerging economies we show that ignoring the news component in the terms of trade movements results in misleading conclusions about their importance as a source of cyclical fluctuations using a sample of latin american countries we identify news augmented commodity terms of trade ctot shocks by maximizing the forecast error variance share of the ctot series at a finite future horizon our identification does not rely on zero impact restrictions typically used in the literature for recovering news shocks accounting for news almost doubles the contribution of ctot to explain cyclical fluctuations news augmented ctot shocks explain almost half of output variations in emerging economies

demand and distribution in integrated economies aggregate demand is influenced by the functional income distribution of an economy and that of its trading partners this relationship between income distribution and output is analyzed in a short run two country neo kaleckian model the effects of devaluation and redistribution are discussed in detail trade and redistribution within one country interact and output increases or decreases with changes in either depending on the specific distributional and exchange rate movements the marshall lerner condition is shown to be equivalent to the assumption of expansionary devaluation if devaluation increases output national redistribution policy toward wage earners is also more likely to be expansionary author s abstract

revisions in utilization adjusted tfp and robust identification of news shocks this paper documents large revisions in a widely used series of utilization adjusted total factor productivity tfp by fernald 2014 and shows that these revisions can materially affect empirical

micro and macro labor supply elasticities a reassessment of conventional wisdom the response of aggregate labor supply to various changes in the economic environ ment is central to many economic issues especially the optimal design of tax policies conventional wisdom based on studies in the 1980s and 1990s has long held that the analysis of micro data leads one to conclude that aggregate labor supply elasticities are quite small in this paper we argue that this conventional wisdom does not hold up to empirically reasonable and relevant extensions of simple life cycle models that served as the basis for these conclusions in particular we show that several pieces of conventional wisdom fail in the presence of human capital accumulation or labor supply decisions that allow for adjustment along both the extensive and intensive margin we conclude that previous estimates of small labor supply elasticities based on micro data are fully consistent with large aggregate labor supply elasticities jel d91 e24 j22

a flexible finite horizon alternative to long run restrictions with an application to technology shocks abstract recent studies using long run restrictions question the validity of the technology driven real business cycle hypothesis we propose an alternative identification that maximizes the contribution of technology shocks to the forecast error variance of labor productivity at a long but finite horizon in small sample monte carlo experiments our identification outperforms standard long run restrictions by significantly reducing the bias in the short run impulse responses and raising their estimation precision unlike its long run restriction counterpart when our max share identification technique is applied to u s data it delivers the robust result that hours worked responds negatively to positive technology shocks

efficiency results in n player games with imperfect private monitoring abstract we demonstrate that efficiency is achievable in a certain class of n player repeated games with private almost perfect monitoring our equilibrium requires only one period memory and can be implemented by two state automata furthermore we show that this efficiency result holds with any degree of accuracy of monitoring if private signals are hemiindependent whereas most existing research focuses on two player cases or only a special example of n player games our results are applicable to a wide range of n player games of economic relevance such as trading goods games and price setting oligopolies

stock prices news and economic fluctuations comment beaudry and portier 2006 propose an identification scheme to study the effects of news shocks about future productivity in vector error correction models vecms this comment shows that when applied to their vecms with more than two variables the identification scheme does not have a unique solution the problem arises from a particular interplay of cointegration assumptions and longrun restrictions jel e32 e44 g12 g14 in a highly influential paper beaudry and portier 2006 estimate vector error correction models vecms on us data and find that shocks generating a stock market boom but no contemporaneous movement in total factor productivity tfp henceforth called tfp news are closely related to shocks driving long run variations in tfp moreover these tfp news shocks lead to increases in consumption investment output and hours on impact and constitute an important source of business cycle fluctuations these results run counter to basic dynamic stochastic general equilibrium models and have sparked a new literature attempting to generate news driven positive comovement among macroeconomic aggregates 1 this comment shows that in the vecms with more than two variables estimated by beaudry and portier 2006 their identification scheme fails to determine tfp news yet these higher dimension systems are crucial to quantify the business cycle effects of tfp news 2 the identification problem arises from the interplay of two assumptions first the beaudry portier identification scheme called bp restrictions from here on requires that one of the nonnews shocks has no permanent impact on either tfp or consumption second the vecms estimated by beaudry and portier 2006 impose that tfp and consumption are cointegrated this cointegration means that tfp and consumption have the same permanent component which makes one

news shocks and the slope of the term structure of interest rates abstract we adopt a statistical approach to identify the shocks that explain most of the fluctuations of the slope of the term structure of interest rates we find that one shock can explain the majority of unpredictable movements in the slope impulse response functions lead us to interpret this shock as news about future total factor productivity tfp by showing that slope shocks are essentially tfp news shocks we provide a new explanation for the relationship between the slope and macroeconomic fundamentals our results also provide a new empirical benchmark for structural models at the intersection of macroeconomics and finance jel e23 e43 e52 g12 g14

stagnation income distribution and monopoly power the deceleration in the rate of industrial growth in the indian economy since the middlesixties initially interpreted by some as a temporary downward deviation from trend hasnow come to be generally accepted as reflecting long run tendencies towards stagnation several explanations for these tendencies have been offered bhagwati and desai 1970 and bhagwati and srinivasan 1975 have focused on inefficiencies and the misallocationof resources arising from industrial policies pursued by the government others chakravarty 1974 raj 1976 and vaidyanathan 1974 among them have emphasisedthe sluggishness of agricultural growth which is alleged to have retarded industrial growthby limiting markets and the supply of wage goods and raw materials a third view reflectedin srinivasan and narayana 1977 for example has put the blame on a slackening of invest ment demand due to lower public investment but does not explain why public investmentfell or why its fall restrained industrial growth finally there is the explanation put forthin bagchi 1970 1975 1982 in nayyar 1978 and in parts of mitra 1977 that inequali ties in income distribution have resulted in a limited demand for industrial goods reducedincentives for investment and therefore reduced growth this view seems to suggest apositive relation between growth and income equality which is opposed to the generallyaccepted idea derived from cambridge growth models that higher growth requires greaterinequality the purpose of this paper is to examine the last explanation by considering the inter action between growth and income distribution in an underdeveloped economy with thehelp of a simple macroeconomic model the model is a stylisation of the indian economy so that we will be able to use the model to assess the argument that a deceleration in therate of growth of the indian industrial economy could have been caused by an unequaldistribution of income the argument will not be made that this income distributional con straint is the binding constraint on industrial growth the model will merely examine theinternal consistency of the argument that a bad income distribution could explain stagnation in the sense of reduced growth and show that in the indian context as in other similarcontexts this argument can be put forward in explaining stagnation our argument is first presented with a highly simplified schematisation of the indianeconomy which we shall call the basic model the economy modelled produces only one

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

can long run restrictions identify technology shocks gali s innovative approach of imposing long run restrictions on a vector autoregression var to identify the effects of a technology shock has become widely utilized in this paper we investigate its reliability through monte carlo simulations using calibrated business cycle models overall gali s methodology appears to be fruitful the impulse responses derived from the artificial data generally have the same sign and qualitative pattern as the true responses and the approach can be informative in discriminating between alternative models however our results reveal some important quantitative shortcomings including considerable estimation uncertainty about the impact of technology shocks on macroeconomic variables more generally the conditions under which the methodology performs well appear considerably more restrictive than implied by the key identifying assumption this underscores the importance of using economic models to guide in the implementation of the approach in interpreting the results and in assessing its limitations jel c32 e32 o33

news shocks and the slope of the term structure of interest rates comment abstract kurmann and otrok 2013 establish that the effects on economic activity from news on future productivity growth are similar to the effects from unexpected changes in the slope of the yield curve this comment shows that these results become substantially weaker in the light of a recent update in the utilization adjusted total factor productivity series produced by fernald 2014 jel e23 e32 e43 e52 g12

mood swings and business cycles evidence from sign restrictions this paper provides new evidence that bouts of optimism and pessimism are an important source of u s business cycles using the identification schemes based on sign restrictions we document that identified optimism and pessimism shocks account for about 30 of u s business cycle fluctuations in hours and output in addition our empirical findings are consistent with the intensive and extensive margin adjustments in the u s labor market over business cycles providing further support to optimism shocks being an important source of u s business cycles the identified optimism shocks are at least partially rational as total factor productivity is found to rise 8 12 quarters after an initial bout of optimism while this later finding is consistent with some previous findings in the news shock literature we cannot rule out that such episodes reflect self fulfilling beliefs

stochastic technical progress smooth trends and nearly distinct business cycles this paper studies a model of random technical progress where technology diffuses at realistically slow rates it fits smooth trends to the sum of gdp series generated by this model and series representing transitory or cyclical fluctuations detrended gdp is then largely unrelated to technical progress the detrending method proposed by rotemberg 1999 reconstructs cyclical variations somewhat more accurately than the hp filter with sufficiently slow diffusion it is also more accurate than a method based on vars fitted to hours and gdp growth consistent with the model s predictions permanent shocks initially depress both hours and output in these vars

fiscal foresight and information flows news or foresight about future economic fundamentals can create rational expectations equilibria with non fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react using tax policies as a leading example of foresight simple theory makes transparent the economic behavior and information structures that generate non fundamental equilibria econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes biases are quantitatively important when two canonical theoretical models are taken as data generating processes both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non uniqueness problem endemic to moving average representations

a neo kaleckian goodwin model of capitalist economic growth monopoly power managerial pay and labour market conflict this paper presents a neo kaleckian goodwin model of growth and distribution the key innovation is the introduction of managerial pay kaleckian monopoly power determines the functional distribution of income and goodwin labour bargaining power determines the wage bill division the model helps explain slower us growth over the past 30 years for much of that period the functional distribution of income was relatively constant but growth slowed because income inequality increased owing to a wage bill shift from workers to managers the wage bill division effect explains why economies can display wage led and profit led characteristics economies can be profit led regarding functional income distribution and wage led regarding wage bill distribution

read all about it what happens following a technology shock existing indicators of technical change are plagued by shortcomings i present new measures based on books published in the field of technology that resolve many of these problems and use them to identify the impact of technology shocks on economic activity they are positively linked to changes in r d and scientific knowledge and capture the new technologies commercialization dates changes in information technology are found to be important sources of economic fluctuations in the post wwii period and total factor productivity investment and to a lesser extent labor are all shown to increase following a positive technology shock jel e22 e23 e32 o33 o34 o47

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

a stagnationist model of economic growth in an economy subject to persistent excess capacity demand related factors will play a key role in determining patterns of secular change this thesis has a long history in econ omics sometimes in the underworld and occasionally at the height of fashion as recounted by rowthorn 1982 recent manifestations in the first world are the theories of monopoly capitalism of baran and sweezy 1966 and steindl 1952 who in turn follow kalecki 1971 hobson 1902 luxemburg 1951 and the marx of realisation crises and reproduction schemes in volume ii of capital other radicals such as boddy and crotty 1975 add a profit squeeze explanation of the cycle which underlays the dynamics of the growth model specified here in developing countries difficulties in both realisation and sectoral proportions are emphasised as obstacles to growth witness lustig s 1980 review of latin american structuralist theory and dutt s 1984 model which formalises an ongoing controversy in india about how income redistribution might affect prospects for industrialisation all these authors are stagnationist in assuming that both the growth rate and the level of capacity utilisation can be different under different conditions of income distribution and or macroeconomic policy their preferred policies will presumably lead to greater equality increase utilisation or step up growth they typically ask two analytical ques tions how does output respond in the short run to shifts in the income distribution how do output adjustments feed back into distributional dynamics especially under conditions when price and wage inflation rates may be influenced by employment levels productivity changes and conflicting income claims in what follows we set out a simple model to address these questions and explore the implications for macroeconomic policy of the answers that arise since the approach is not familiar to economists with a standard training a verbal description of the growth model is given first those who wish to jump directly into a formal presentation can proceed to section 1 output x is assumed to meet demand in an instantaneous short run we measure activity as the ratio of firms net cash inflow to the value of capital stock i e the rate of profit r during the short run the price level p is fixed by a mark up rule p 1 x wb where r is the mark up rate w the money wage and b the labor output ratio with this rule the share of profits or mark up income in the value of output is r l t let u stand for the output capital ratio or capacity utilization xik by simple identity

distribution and growth reconsidered empirical results for six oecd countries we analyse the relationship between functional income distribution and economic growth in austria france germany the netherlands the uk and the usa from 1960 until 2005 the analysis is based on a demand driven distribution and growth model for an open economy inspired by bhaduri and marglin which allows for either profit or wage led growth we find that growth in france germany the uk and the usa has been wage led whereas austria and the netherlands have been profit led in the case of austria a domestically wage led economy changes to profit led when including the effect of distribution on external trade the netherlands however are already profit led without external trade our results so far only partially confirm bhaduri and marglin s theoretical conclusion that wage led growth becomes less feasible when the effects of distribution on foreign trade are taken into account

news driven business cycles insights and challenges there is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations the news view of business cycles offers a formalization of this perspective in this paper we discuss mechanisms by which changes in agents information due to the arrival of news can cause business cycle fluctuations driven by expectational change and we review the empirical evidence aimed at evaluating their relevance in particular we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established jel d83 d84 e13 e32 o33

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

personal income inequality and aggregate demand this paper presents a theoretical and empirical investigation of how changes in the size distribution of income can aect aggregate demand and the demand regime of an economy after presenting empirical evidence for the us economy that the propensity to save increases signicantly from the bottom to the top quintile of wage earners we demonstrate that more equal distributions always lead to higher output in the traditional neo kaleckian macroeconomic model we also present conditions under which a reduction of income inequality among workers turns demand more wage led this view is supported by the results of an econometric study for the united states 1967 2010 which show that the rise after 1980 in income inequality has made the us economy more prot led

news shocks and business cycles abstract this paper proposes and implements a novel structural var approach to the identification of news shocks about future technology the news shock is identified as the shock orthogonal to the innovation in current utilization adjusted tfp that best explains variation in future tfp a favorable news shock leads to an increase in consumption and decreases in output hours and investment on impact more suggestive of standard dsge models than of recent extensions designed to generate news driven business cycles though news shocks account for a significant fraction of output fluctuations at medium frequencies they contribute little to our understanding of recessions

do technology shocks lead to a fall in total hours worked this paper contributes to the debate initiated by gali in 1999 i provide a theory with capital income taxation labor hoarding as well as long run shifts in the social attitudes to the workplace modelled as leisure at the workplace to argue that there are other shocks that may influence labor productivity in the long run i introduce medium run identification and show it to be superior to long run identification or standard short run identification when applied to artificial data with u s data and medium run identification i find the robust result that technology shocks lead to a hump shaped response of total hours worked which is mildly positive following a near zero initial response jel e32 e24 c32 c15 copyright c 2004 the european economic association

a sectoral net lending perspective on europe the paper investigates net lending and net borrowing flows of the institutional sectors in europe since the introduction of the euro in 1999 applying a simple statistical apparatus this paper is novel in describing the sectoral behavior leading up to and during the crisis we find that 1 many countries of the northern group were characterized by low public deficits or even budget surpluses current account surpluses and a private sector in a net lending position in countries of the southern periphery in the anglo saxon countries as well as in many eastern european economies private sector net borrowing coincided with a budget deficit and substantial current account deficits 2 with the onset of the crisis private net lending soared in all countries while all governments incurred deficits consistent with the notion of a balance sheet recession 3 private net lending is pro cyclical reinforcing the economic downturn while public net lending is countercyclical in all countries 4 household net lending tends to lead the business cycle while corporate net lending tends to lag it especially in the northern group 5 prominent concepts asserting causal relationships in sectoral net lending such as ricardian equivalence and the twin deficit hypothesis are not supported by the data authors abstract

information animal spirits and the meaning of innovations in consumer confidence we show that unexplained innovations in several variables representing survey responses to forwardlooking questions on the michigan survey of consumers have powerful prognostic implications for the future paths of macroeconomic variables we attempt to distinguish the hypothesis that these impulse responses indicate a causal channel from autonomous movements in sentiment to economic outcomes the animal spirits view from the alternative interpretation that the surprise confidence movements summarize information about future economic prospects the information view in natural rate models animal spirits shocks are associated with overshooting of among other variables consumption that attenuates when agents come to grips with their overreaction while information shocks about the long future are followed by gradual movements in macroeconomic variables that are not subsequently reversed in a baseline vector autoregression involving consumption income and confidence the data come down sharply in favor of the information view the impulse responses of consumption and gdp show no tendency to attenuate even after a number of years further confidence innovations have strong implications for labor productivity many quarters into the future in somewhat larger vars with an information block that includes inflation and or stock prices the impulse responses to confidence innovations continue to have the permanent shape that defines information shocks but they are smaller in magnitude we demonstrate that this is due to the fact that both inflation and stock price innovations have prognostic implications for future productivity that are very similar to the implications of innovations in confidence addition of unemployment to the system induces a transitory component that changes the shape of the impulse responses and somewhat weakens the previously airtight case against animal spirits but it does not provide constructive evidence of such effects

unemployment and the real wage the economic basis for contesting political ideologies using the keynesian theory of effective demand this paper demonstrates how particular models such as that of cooperative capitalism enunciated by the left keynesian social democrats the marxian model of profit squeeze emphasizing distributive conflict and even the conservative model relying on supply side stimulus fit in as particular variants of a more general theoretical scheme through a reconstruction of the familiar is schedule the argument is weaved around the theme of the relations between unemployment and real wage in the context of both a closed and an open economy to explain the common macroeconomic basis of contesting ideologies copyright 1990 by oxford university press

monetary policy and macroeconomic stability under alternative demand regimes in this paper we analyse the interaction of macroeconomic activity and the dynamics of real wages from a theoretical perspective by means of a system dynamic approach we investigate the economic viability of wage and profit led demand regimes by analysing not only the effect of real wages on output but also the feedback mechanisms of macroeconomic activity on the real wages furthermore in this context we focus on the role of monetary policy as a macroeconomic stabilisation mechanism in the two mentioned demand regimes