Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56983
Authors: 
López-Gallardo, Julio
Reyes-Ortiz, Luis
Year of Publication: 
2011
Series/Report no.: 
Working paper, Levy Economics Institute 673
Abstract: 
We present strong empirical evidence favoring the role of effective demand in the US economy, in the spirit of Keynes and Kalecki. Our inference comes from a statistically well-specified VAR model constructed on a quarterly basis from 1980 to 2008. US output is our variable of interest, and it depends (in our specification) on (1) the wage share, (2) OECD GDP, (3) taxes on corporate income, (4) other budget revenues, (5) credit, and the (6) interest rate. The first variable was included in order to know whether the economy under study is wage led or profit led. The second represents demand from abroad. The third and fourth make up total government expenditure and our arguments regarding these are based on Kalecki's analysis of fiscal policy. The last two variables are analyzed in the context of Keynes's monetary economics. Our results indicate that expansionary monetary, fiscal, and income policies favor higher aggregate demand in the United States.
Subjects: 
effective demand
wage shares
monetary policy
fiscal policy
model evaluation
JEL: 
C52
E12
E25
E52
E63
Document Type: 
Working Paper

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