Estimation of a long run regime for growth and demand through different filtering methods

Abstract

Abstract This paper discusses the possibility of estimating a long run relationship between income distribution and growth. As emphasized by Blecker, the neo-Kaleckian empirical literature has focused on the estimation of a short run relationship. This paper contributes to the debate by looking at a long term relationship through the use of filtering methods. We first estimate the long run component (or “trend” component) of the relevant variables using various types of filters. Second, we run causality tests and frequentist estimations to test for the relationship between the estimated trend components. We find that there is little difference between the results of each filter and there is empirical evidence for long run relationship between the rate of capacity utilization and income distribution. We also find that there is some empirical evidence for long run wage-led growth.