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What is the Impact of an Exogenous Shock to the Wage Share? VAR Results for the US Economy, 1973–2018

Deepankar Basu () and Leila Gautham ()
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Deepankar Basu: Department of Economics, University of Massachusetts Amherst
Leila Gautham: Department of Economics, University of Massachusetts Amherst

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: This paper uses a novel empirical strategy to present empirical estimates of the effect of an exogenous shock to distribution on demand and accumulation for the US economy from 1973 to 2018. We use recursive vector autoregressions to identify the impact of shocks to the wage share. We impose restrictions motivated by a simple neo-Kaleckian open-economy model, and build on the recursive identification scheme in Christiano, Eichenbaum and Evans (1999) to show that this small set of plausible and transparent assumptions are sufficient to identify the impact of shocks to distribution. We find that positive shocks to the wage share have long-lasting negative impacts on demand and growth. Our results are robust to the inclusion of additional variables and to differences in specification.

Keywords: Demand-distribution dynamics; neo-Kaleckian models; functional income distribution; VAR estimation (search for similar items in EconPapers)
JEL-codes: C32 D3 E25 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-bec, nep-mac and nep-pke
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