Medium-term fluctuations and the "Great Ratios" of economic growth

TY - JOUR

T1 - Medium-term fluctuations and the "Great Ratios" of economic growth

AU - Groth, Christian

AU - Madsen, Jakob B.

N1 - JEL Classification: E32; G11; O41

PY - 2016/9/1

Y1 - 2016/9/1

N2 - 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.

AB - 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.

KW - Faculty of Social Sciences

KW - E32

KW - G11

KW - O41

U2 - 10.1016/j.jmacro.2016.07.001

DO - 10.1016/j.jmacro.2016.07.001

M3 - Journal article

SN - 0164-0704

VL - 49

SP - 149

EP - 176

JO - Journal of Macroeconomics

JF - Journal of Macroeconomics

ER -