Medium-term fluctuations and the “Great Ratios” of economic growth

Christian Groth () and Jakob Madsen

Journal of Macroeconomics, 2016, vol. 49, issue C, 149-176

Abstract: Evidence for the OECD countries show that the “great ratios”, such as the unemployment rate, factor shares, Tobin's q, and the investment-capital ratio, fluctuate significantly on medium-term frequencies of 8–40 years duration. To explain these medium-term fluctuations, we establish a macro-dynamic model where the q-theory of investment is combined with sluggish real-wage adjustment in the labour market. In this framework, responses to shocks show persistence and amplification. A high degree of real-wage rigidity combined with a low elasticity of factor substitution leads to damped internal oscillations and hump-shaped impulse-response functions.

Keywords: Medium-term cycles; Tobin's q; Real-wage Phillips curve; Elasticity of factor substitution; Endogenous oscillations (search for similar items in EconPapers)
JEL-codes: E32 G11 O41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Working Paper: Medium-term Fluctuations and the "Great Ratios" of Economic Growth (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:49:y:2016:i:c:p:149-176

DOI: 10.1016/j.jmacro.2016.07.001

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