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Systems estimation of a structural model of distribution and demand in the US economy

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Listed:
  • Robert A. Blecker

    (American University)

  • Michael Cauvel

    (Ithaca College)

  • Yun Kim

    (University of Massachusetts)

Abstract

Empirical studies of income distribution and aggregate demand using a structural modeling approach typically find that demand is wage-led in most large, advanced economies. These studies have been criticized for estimating the individual equations for consumption, investment, and net exports separately, treating total output and the wage share as exogenous, which could lead to simultaneity bias. This paper corrects for such possible bias as well as common shocks to the equations by using systems GMM estimation applied to annual US data for 1963-2016. This paper is also the first to provide separate estimates of nonresidential and residential investment functions and to distinguish the effects of shocks to different underlying determinants of the wage share (unit labor costs and firms' monopoly power). Surprisingly, the GMM estimates imply that private-sector aggregate demand is more, rather than less, wage-led (or in some cases, less profit-led) compared with OLS estimates of identically specified models.

Suggested Citation

  • Robert A. Blecker & Michael Cauvel & Yun Kim, 2020. "Systems estimation of a structural model of distribution and demand in the US economy," FMM Working Paper 54-2020, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:fmmpap:54-2020
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    Cited by:

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    2. Sordi, Serena & Dávila-Fernández, Marwil J., 2023. "The green-MKS system: A baseline environmental macro-dynamic model," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 1056-1085.
    3. Cícero, Vinicius Curti & Lima, Gilberto Tadeu, 2023. "Functional distribution of income as a determinant of importing behavior: An empirical analysis," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 393-405.
    4. Ozan Ekin Kurt, 2022. "Debt, Wealth, Income Distribution and Demand: A post-Keynesian Empirical Study on Turkiye," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-2), pages 507-541, December.
    5. Jose Barrales‐Ruiz & Ivan Mendieta‐Muñoz & Codrina Rada & Daniele Tavani & Rudiger von Arnim, 2022. "The distributive cycle: Evidence and current debates," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 468-503, April.
    6. Ettore Gallo, 2023. "How Short Is the Short Run in the Neo-Kaleckian Growth Model?," Review of Political Economy, Taylor & Francis Journals, vol. 35(3), pages 687-701, July.
    7. André M. Marques, 2022. "Reviewing demand regimes in open economies with Penn World Table data," Manchester School, University of Manchester, vol. 90(6), pages 730-751, December.
    8. Marques, André M. & Lima, Gilberto Tadeu, 2022. "Testing for Granger causality in quantiles between the wage share in income and productive capacity utilization," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 290-312.
    9. Jose Barrales-Ruiz, Ivan Mendieta-Muñoz, Codrina Rada, Daniele Tavani, Rudiger von Arnim, 2020. "The distributive cycle: Evidence and current debates," Working Paper Series, Department of Economics, University of Utah 2020_07, University of Utah, Department of Economics.
    10. Gonzalez, Alejandro, 2024. "Bargaining power, demand growth and the decline of the labor share," OSF Preprints 78kad, Center for Open Science.
    11. Cauvel, Michael & Pacitti, Aaron, 2022. "Bargaining power, structural change, and the falling U.S. labor share," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 512-530.
    12. Ryan Woodgate, 2022. "Profit-led in effect or in appearance alone? Estimating the Irish demand regime given the influence of multinational enterprises," Review of Evolutionary Political Economy, Springer, vol. 3(2), pages 319-350, July.
    13. Paul Carrillo‐Maldonado, 2023. "Partial identification for growth regimes: The case of Latin American countries," Metroeconomica, Wiley Blackwell, vol. 74(3), pages 557-583, July.

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    More about this item

    Keywords

    income distribution; wage-led demand; profit-led demand; US economy; systems estimation;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

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