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Medium-term fluctuations and the “Great Ratios” of economic growth

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  • Groth, Christian
  • Madsen, Jakob B.

Abstract

Evidence for the OECD countries show that the “great ratios”, such as the unemployment rate, factor shares, Tobin's q, and the investment-capital ratio, fluctuate significantly on medium-term frequencies of 8–40 years duration. To explain these medium-term fluctuations, we establish a macro-dynamic model where the q-theory of investment is combined with sluggish real-wage adjustment in the labour market. In this framework, responses to shocks show persistence and amplification. A high degree of real-wage rigidity combined with a low elasticity of factor substitution leads to damped internal oscillations and hump-shaped impulse-response functions.

Suggested Citation

  • Groth, Christian & Madsen, Jakob B., 2016. "Medium-term fluctuations and the “Great Ratios” of economic growth," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 149-176.
    • Handle: RePEc:eee:jmacro:v:49:y:2016:i:c:p:149-176
    DOI: 10.1016/j.jmacro.2016.07.001
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    Cited by:

    1. Asada, Toichiro & Flaschel, Peter & Greiner, Alfred & Proaño, Christian R., 2011. "Sustainable capitalism: Full-employment flexicurity growth with real wage rigidities," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 248-264, March.
    2. Peter Flaschel & Alfred Greiner, 2010. "Dissent-Driven Capitalism, Flexicurity Growth and Environmental Rehabilitation," Chapters, in: Mark Setterfield (ed.), Handbook of Alternative Theories of Economic Growth, chapter 16, Edward Elgar Publishing.
    3. Jakub Growiec & Peter McAdam & Jakub Mućk, 2021. "On the Optimal Labor Income Share," International Journal of Central Banking, International Journal of Central Banking, vol. 17(70), pages 1-52, October.
    4. Charpe, Matthieu & Bridji, Slim & Mcadam, Peter, 2020. "Labor Share And Growth In The Long Run," Macroeconomic Dynamics, Cambridge University Press, vol. 24(7), pages 1720-1757, October.
    5. Flaschel, Peter & Greiner, Alfred, 2009. "Employment cycles and minimum wages. A macro view," Structural Change and Economic Dynamics, Elsevier, vol. 20(4), pages 279-287, December.
    6. Peter Flaschel & Alfred Greiner, 2011. "A Future for Capitalism," Books, Edward Elgar Publishing, number 14241.
    7. Flaschel, Peter & Greiner, Alfred, 2012. "Flexicurity Capitalism: Foundations, Problems, and Perspectives," OUP Catalogue, Oxford University Press, number 9780199751587.

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    More about this item

    Keywords

    Medium-term cycles; Tobin's q; Real-wage Phillips curve; Elasticity of factor substitution; Endogenous oscillations;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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