EconStor Community: Levy Economics Institute of Bard College
https://hdl.handle.net/10419/307
Levy Economics Institute of Bard College2024-03-28T13:33:05ZMarkups, profit shares, and cost-push-profit-led inflation
https://hdl.handle.net/10419/283228
Title: Markups, profit shares, and cost-push-profit-led inflation
Authors: Nikiforos, Michalis; Grothe, Simon; Weber, Jan
Abstract: The post-pandemic surge in inflation was accompanied by a surge in the corporate share of profits. As a result, several economists and policy makers have given to it names such as "profit-led inflation" or "sellers' inflation." The present paper discusses the extent to which profit-led inflation, as an explanation for the recent surge in inflation, is compatible with what we know about the price-setting behavior of firms, income distribution, and inflation. We do that in juxtaposition to two recent critiques: that the increase in the profit share is the result of cyclical factors, and that the increase in import prices leads to higher profit shares even under constant markups. We show that there is little evidence that the recent surge in profitability is cyclical in nature. Moreover, after outlining the Structuralist/Kaleckian theories of prices and inflation we argue that profit-led inflation does not require an increase in the markup of the firms and is consistent with these theories. In the face of large import and other price shocks even under constant markups, firms are able to pass the burden of adjustment to real wages. Thus, the term profit-led emphasizes the distributional source and consequences of inflation. We also provide an empirical examination of the markups in the post-pandemic period using data from the Compustat database. We show that, on average, firms were able to increase or maintain their markups, although there is significant heterogeneity across sectors or the position of the firms in the distribution of markups.2024-01-01T00:00:00ZEconomic possibilities for our grandchildren: 90 years later
https://hdl.handle.net/10419/283229
Title: Economic possibilities for our grandchildren: 90 years later
Authors: Bibow, Jörg
Abstract: This paper revisits Keynes's (1930) essay titled "The economic possibilities for our grandchildren." We discuss the three broader trends identified by Keynes that he expected would come to characterize the socio-economic evolution of advanced countries under individualistic capitalism: first, continued technological progress and capital accumulation as the main drivers of exponential growth in economic possibilities; second, a gradual general rebalancing of life choices away from work; and third, a change in the code of morals in societies approaching an envisioned stationary state of zero net capital accumulation in which mankind has solved its economic problem and enjoys a lifestyle predominantly framed by leisure rather than disutilityyielding work. We assess actual outcomes by 2023 and attempt to peek into the future economic possibilities for this generation's grandchildren.2024-01-01T00:00:00ZThe estimation of production functions with monetary values
https://hdl.handle.net/10419/283227
Title: The estimation of production functions with monetary values
Authors: Felipe, Jesus; McCombie, John S. L.; Mehta, Aashish
Abstract: For decades, the literature on the estimation of production functions has focused on the elimination of endogeneity biases through different estimation procedures to obtain the correct factor elasticities and other relevant parameters. Theoretical discussions of the problem correctly assume that production functions are relationships among physical inputs and output. However, in practice, they are most often estimated using deflated monetary values for output (value added or gross output) and capital. This introduces two additional problems-an errors-invariables problem, and a tendency to recover the factor shares in value added instead of their elasticities. The latter problem derives from the fact that the series used are linked through the accounting identity that links value added to the sum of the wage bill and profits. Using simulated data from a cross-sectional Cobb-Douglas production function in physical terms from which we generate the corresponding series in monetary values, we show that the coefficients of labor and capital derived from the monetary series will be (a) biased relative to the elasticities by simultaneity and by the error that results from proxying physical output and capital with their monetary values; and (b) biased relative to the factor shares in value added as a result of a peculiar form of omitted variables bias. We show what these biases are and conclude that estimates of production functions obtained using monetary values are likely to be closer to the factor shares than to the factor elasticities. An alternative simulation that does not assume the existence of a physical production function confirms that estimates from the value data series will converge to the factor shares when cross-sectional variation in the factor prices is small. This is, again, the result of the fact that the estimated relationship is an approximation to the distributional accounting identity.2024-01-01T00:00:00ZThe Swedish monetary system from a balance sheet perspective
https://hdl.handle.net/10419/283226
Title: The Swedish monetary system from a balance sheet perspective
Authors: Ehnts, Dirk; Ora, Jussi
Abstract: In this paper, we discuss the balance sheet mechanics of the Swedish government. We examine spending, government bond purchases, and tax payments. As long as the Swedish central bank, which is created through Swedish laws, supports the Swedish central government, it cannot run out of money. The Swedish government therefore plays a large role in the Swedish economy. It can and should target full employment and price stability, bringing to bear its fiscal power.2024-01-01T00:00:00Z