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Animal spirits and the Goodwin pattern

Author

Listed:
  • Mark Setterfield

    (Department of Economics, New School For Social Research, USA)

  • George Wheaton

    (Department of Economics, New School For Social Research, USA)

Abstract

The Goodwin pattern – a counter-cyclical rotation in real activity × wage share space – is an established stylized fact of capitalist macrodynamics. Existing models typically assume profit-led real-sector dynamics, together with a ‘reserve army’ or profit squeeze mechanism, in order to reproduce this pattern. We extend an animal-spirits-driven business cycle model, in which the demand regime determining real-sector outcomes is wage-led, by adding a reserve army effect determining real wage dynamics. We construct an agent-based simulation of the model and show that we are able to reproduce the Goodwin pattern. Our results add to the literature suggesting that the Goodwin pattern can arise from a variety of different macrodynamic ensembles – including some that feature wage-led real sectors.

Suggested Citation

  • Mark Setterfield & George Wheaton, 2024. "Animal spirits and the Goodwin pattern," Working Papers 2407, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2407
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    More about this item

    Keywords

    Goodwin pattern; animal spirits; wage-led demand; reserve army mechanism; profit squeeze; agent-based model; cyclical growth;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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