The Sraffian Supermultiplier and Cycles: Theory and Empirics

This paper provides a theoretical and empirical reassessment of supermultiplier theory. First, we show that, as a result of the passive role it assigns to investment, the Sraffian supermultiplier predicts that the rate of utilization leads the investment share in a dampened cycle or equivalently that a convergent cyclical motion in the utilization-investment share plane would be counter-clockwise. Second, impulse response functions from standard recursive Vector Autoregressions for post-war US samples strongly indicate that the investment share leads the rate of utilization, or that these cycles are clockwise. These results raise questions about the key mechanism underlying supermultiplier theory.