A Time Series Analysis of Corporate Profit Rates in Selected Developed Economies: Asymmetries, Non-linearity and Mean Reversion

This study examines the dynamic behaviour of corporate profits in selected developed economies using the quarterly data. Firstly, the non-linear and asymmetric behaviour is considered: the presence of general form of nonlinearity (based on linear autoregressive model, third order moments and Brock–Dechert–Scheinkman test), of steepness and deepness asymmetry (using the ‘triples test’), and of the cycle-specific asymmetry (using asymmetry in mean and variance models with cycle dummies). Secondly, we examined the possibility of mean-reversion in the series, using a battery of recently developed unit root tests that account for the presence of structural breaks and nonlinearities. The findings indicate mean reversion and trend-stationarity of the profits for most of the economies, thus suggesting impossibility of sustained growth in profits in times of sluggish economic growth and productivity slowdown. The profits were also found to contain non-Gaussian characteristics, to exhibit asymmetric fluctuation in mean (but not variance), and to demonstrate deepness asymmetry.