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Statistical Evidence of Falling Profits as Cause of Recession

Author

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  • José A. Tapia Granados

Abstract

Data on 251 quarters of the U.S. economy show that recessions are preceded by declines in profits. Profits stop growing and start falling four or five quarters before a recession. They strongly recover immediately after the recession. Since investment is to a large extent determined by profitability and investment is a major component of demand, the fall in profits leading to a fall in investment, in turn leading to a fall in demand, seems to be a basic mechanism in the causation of recessions. JEL codes : E01, E11, E32

Suggested Citation

  • José A. Tapia Granados, 2012. "Statistical Evidence of Falling Profits as Cause of Recession," Review of Radical Political Economics, Union for Radical Political Economics, vol. 44(4), pages 484-493, December.
    • Handle: RePEc:sae:reorpe:v:44:y:2012:i:4:p:484-493
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    Cited by:

    1. Özgün Sarımehmet Duman, 2014. "A theoretical framework for the analysis of the current global economic crisis: The financial market and the real economy," The Economic and Labour Relations Review, , vol. 25(2), pages 240-252, June.
    2. Duque Garcia, Carlos Alberto, 2022. "Ciclos económicos, inversión y rentabilidad del capital en Colombia: un análisis de series de tiempo [Economic cycles, investment and profits in Colombia: a time-series analysis]," MPRA Paper 113272, University Library of Munich, Germany.

    More about this item

    Keywords

    business cycles; recessions; profits; national accounts;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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