ACCOUNTING FOR THE CYCLICAL DYNAMICS OF INCOME SHARES

Enchuan Shao and Pedro Silos

Economic Inquiry, 2014, vol. 52, issue 2, 778-795

Abstract: type="main" xml:lang="en">

Over the business cycle, labor's share of output is negatively but weakly correlated with output, and it lags output by about four quarters. Profits' share is strongly pro-cyclical. It neither leads nor lags output, and its volatility is about five times that of output. Those assumptions relate to the structure of aggregate technology and the degree of competition in factor markets. Despite much evidence in favor of time-varying income shares, macroeconomics still lacks models that can account for their time series facts. This article constructs a model that can replicate those facts. We introduce costly entry of firms in a model with frictional labor markets and find a link between the ability of the model to replicate income shares' dynamics and the ability of the model to amplify and propagate shocks. That link is a weak correlation between the real interest rate and output, a fact in U.S. data but a feature that models of aggregate fluctuations have had difficulty achieving. (JEL E3, E25, J3, E24)

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://hdl.handle.net/10.1111/ecin.12065 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Accounting for the cyclical dynamics of income shares (2011)
Working Paper: Accounting for the Cyclical Dynamics of Income Shares (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ecinqu:v:52:y:2014:i:2:p:778-795

Ordering information: This journal article can be ordered from
https://ordering.onl ... s.aspx?ref=1465-7295

Access Statistics for this article

Economic Inquiry is currently edited by Tim Salmon

More articles in Economic Inquiry from Western Economic Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().