Animal spirits and the Goodwin pattern

Mark Setterfield and George Wheaton ()
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George Wheaton: Department of Economics, New School For Social Research, USA

No 2407, Working Papers from New School for Social Research, Department of Economics

Abstract: The Goodwin pattern – a counter-cyclical rotation in real activity × wage share space – is an established stylized fact of capitalist macrodynamics. Existing models typically assume profit-led real-sector dynamics, together with a ‘reserve army’ or profit squeeze mechanism, in order to reproduce this pattern. We extend an animal-spirits-driven business cycle model, in which the demand regime determining real-sector outcomes is wage-led, by adding a reserve army effect determining real wage dynamics. We construct an agent-based simulation of the model and show that we are able to reproduce the Goodwin pattern. Our results add to the literature suggesting that the Goodwin pattern can arise from a variety of different macrodynamic ensembles – including some that feature wage-led real sectors.

Keywords: Goodwin pattern; animal spirits; wage-led demand; reserve army mechanism; profit squeeze; agent-based model; cyclical growth (search for similar items in EconPapers)
JEL-codes: C63 E11 E12 E32 E37 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2024-05
New Economics Papers: this item is included in nep-cmp, nep-hme, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:2407

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