Search

This paper empirically investigates the possibility of self-sustained oscillations at business cycle frequency. The theoretical model considers aggregate economic activity and the functional income distribution in the spirit of Goodwin (1967). In the empirical investigation, we utilize four measures each of economic activity and the labor share for the US post-war macroeconomy. Using Schuster’s periodogram, we first show that these time series have an important frequency peak at about forty quarters. We therefore detrend them with wavelet methods. To allow for nonlinear dynamic interaction, we introduce a feedforward neural network (FNN). This method is first shown to correctly identify stability or a limit cycle in simulations of the theoretical model with reasonable noise and sample size. Estimation results provide some support for a limit cycle in the post-war US, but this evidence is not independent of detrending methods used.

This paper surveys current debates on the distributive cycle. The literature builds on R.M. Goodwin’s seminal 1967 chapter titled “A growth cycle.” We review theoretical motivations for the distributive cycle, which, despite signif-icant differences, all imply that macroeconomic activity leads the labor share in a counter-clockwise cycle in the activity-labor share plane. Subsequently, we summarize and update evidence on the existence of a distributive cycle, with a focus on the post-war US macroeconomy. We analyze activity and labor share series and their interaction in the frequency domain, and also employ stan-dard vector autoregressions. Results confirm the distributive cycle for the US post-war period. We contextualize results vis-`a-vis current debates: (1) we consider a financial cycle, to rebut the theoretical possibility of “pseudo-Goodwin” cycles, (2) demonstrate that a suppressed labor share and stagnation are com-patible with short run Goodwin cycles, and argue that this link presents the way forward for research on secular stagnation.

Financialization of oil price and its effects on the economy has been a topic of major interest over the last decade. In this paper, we use a threshold VAR model to investigate how oil price reacts to financial shock in periods of low and high financial stress. We find that the sensitivity of oil price to financial shock imply a six times larger impact and much longer time to recover during periods of high financial stress compared with low stress. Further, oil price shock during different financial regimes has dissimilar effects over inflation and industrial production. Taken together, the findings have several important implications for designing effective policy interventions.

At the onset of coronavirus in January 2020, crude oil price was around $51.63 per barrel. But the subsequent spread of the virus across countries all over the world adversely impacted the day-to-day functioning of major industries, corporations, and economies. This adverse impact was amplified by the lockdown measures by governments who were justifiably concerned about the potential devastating effect of the pandemic. As the outbreak intensified, so did oil prices plunge into historic lows (at some point, negative). Is the precipitous drop in oil prices due to the COVID-19 pandemic or are there potentially other factors at play? In this paper, we investigate this question using a pentavariate structural vector autoregression (SVAR) model. Specifically, we identify an exogenous oil price shock arising from the pandemic together with the traditional underlying supply, demand, and financial market shocks to global crude oil markets. We find that a pandemic shock causes a delayed adverse effect on oil prices. In addition, our findings lend support to the view that changes in financial market conditions that affect financial investment decisions also play a significant role in oil price movements. There is however no evidence of a strong impact emanating from the brief Russia-Saudi price war. We also compute the forecast error variance decomposition and find that the impact of a pandemic shock together with aggregate demand and financial market shocks are not trivial in the short run. Taken together, the findings underscore the fruitfulness of research aimed at better understanding the effects of a pandemic shock on oil price movements and highlight the need for policymakers and market stakeholders to explicitly consider global health conditions when analyzing the causes and consequences of oil price shocks.