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Changing dynamics and tail risks of aggregate demand and income distribution

Author

Listed:
  • Jose Barrales-Ruiz

    (Center of Economics for Sustainable Development (CEDES), Faculty of Economics and Government, Universidad San Sebastian and Universidad Catolica de la Santısima Concepcion.)

  • Ivan Mendieta-Muñoz

    (Department of Economics, University of Utah)

Abstract

This paper examines the changes in the dynamic interactions between aggregate demand and income distribution in the USA. We focus on two periods that capture the relevant characteristics before and after contemporary neoliberal capitalism. We study the interactions between aggregate demand and income distribution in both periods using structural quantile vector autoregression models. This allows us to assess the informational content of the dynamic interactions at all parts of the relevant distributions, including the potential tail risks. The results show evidence of important reductions in the profit-led effect across the whole distribution of aggregate demand during neoliberalism; while profit squeeze dynamics have decreased at most parts of the distribution of income but have increased its downside risk, thus becoming more heterogeneous across the distribution of income. Notwithstanding the underlying transmission mechanisms have remained unaltered across the two periods, our results highlight that the interactions between aggregate demand and income distribution have become a more complex phenomenon to study since the mid-1980s.

Suggested Citation

  • Jose Barrales-Ruiz & Ivan Mendieta-Muñoz, 2024. "Changing dynamics and tail risks of aggregate demand and income distribution," Working Papers 2414, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2414
    as

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    File URL: http://www.economicpolicyresearch.org/econ/2024/NSSR_WP_142024.pdf
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    References listed on IDEAS

    as
    1. Galbraith, James K., 2016. "Inequality: What Everyone Needs to Know," OUP Catalogue, Oxford University Press, number 9780190250478.
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    3. Thomas I. Palley, 2013. "Enriching the Neo-Kaleckian Growth Model: Nonlinearities, Political Economy, and Financial Factors," Working Papers wp335, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Michael Assous & Amitava Krishna Dutt, 2013. "Growth and income distribution with the dynamics of power in labour and goods markets," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(6), pages 1407-1430.
    5. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Aggregate demand; income distribution; tail risks; quantile vector autoregression; neoliberalism;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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