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

Robert Blecker, Michael Cauvel and Yk Kim

No 2021-03, Working Papers from University of Massachusetts Boston, Economics Department

Abstract: This paper investigates noncyclical, short-run relationships between income distribution and the components of aggregate demand in the US from 1963-2016. Previous studies using this `structural' methodology have typically found that demand is wage-led in most large, advanced economies. However, these studies have been criticized for treating total output and the wage share as exogenous, potentially leading to simultaneity bias. This paper corrects for such possible bias as well as common shocks to the equations by using systems GMM. Sur- prisingly, these 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. This paper is also the first to provide separate estimates of nonresidential and residential investment functions and to distinguish the e ects of shocks to di erent underlying determinants of the wage share (unit labour costs and firms' monopoly power), finding that these di er qualitatively.

Keywords: Income distribution; wage-led demand; profit-led demand; US economy; systems estimation (search for similar items in EconPapers)
JEL-codes: C36 E12 E25 N12 O51 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2021-10
New Economics Papers: this item is included in nep-mac
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http://repec.umb.edu/RePEc/files/2021_03.pdf (application/pdf)

Related works:
Journal Article: Systems estimation of a structural model of distribution and demand in the US economy (2022)
Working Paper: Systems estimation of a structural model of distribution and demand in the US economy (2020)
Working Paper: Systems Estimation of a Structural Model of Distribution and Demand in the US Economy (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:mab:wpaper:2021-03

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