Investment, autonomous demand and long-run capacity utilization: an empirical test for the Euro Area

Ettore Gallo and Maria Cristina Barbieri Góes
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Maria Cristina Barbieri Góes: University of Bari ‘Aldo Moro’

Economia Politica: Journal of Analytical and Institutional Economics, 2023, vol. 40, issue 1, No 9, 225-255

Abstract: Abstract This paper reviews and empirically tests the validity of the Sraffian Supermultiplier model (SSM) and the modified Neo-Kaleckian model after the inclusion of autonomous components of aggregate demand. First, we theoretically assess whether the SSM may constitute a complex variant of the Neo-Kaleckian model. In this sense, it is shown that results compatible with the SSM can be obtained by implementing a set of mechanisms in a modified Neo-Kaleckian model. Second, the paper empirically tests the main implications of the models in the Euro Area, based on Eurostat data. In particular, the discussion outlines the short and long-run relation between autonomous demand and output, by testing cointegration and causality with a VECM model. Moreover, the role accounted by both theories to the rate of capacity utilization is empirically assessed, through a time-series estimation of the Sraffian and Neo-Kaleckian investment functions. While confirming the theoretical relation between autonomous demand and output in the long run, the results also show that capacity utilization still plays a key role in the short-run adjustment mechanism.

Keywords: Distribution; Effective demand; Eurozone; Growth; Neo-Kaleckian; Sraffian; Supermultiplier (search for similar items in EconPapers)
JEL-codes: B51 E11 E12 O41 O47 O52 (search for similar items in EconPapers)
Date: 2023
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Related works:
Working Paper: Investment, Autonomous Demand and Long Run Capacity Utilization: An Empirical Test for the Euro Area (2019)
Working Paper: Investment, autonomous demand and long run capacity utilization: An empirical test for the Euro Area (2019)
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DOI: 10.1007/s40888-022-00291-7

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