Autonomous expenditures and induced investment: a panel test of the Sraffian supermultiplier model in European countries

Abstract

This paper tests the main postulates of the Sraffian supermultiplier model for the case of 16 European economies during the period 1995–2018. We adopt the methodology of Girardi and Pariboni (2016) and extend it to a panel framework. We apply panel unit root, cointegration, and causality tests that are robust to endogenous regressors, cross-sectional dependence and heterogeneity across countries. Our results are supportive of the Sraffian supermultiplier model. In a heterogeneous panel framework, autonomous demand and output follow a long-run equilibrium relationship and there exists panel long-run causality that goes unidirectionally from autonomous demand to output. We also empirically verify the investment accelerator (the mechanism that enables the dynamic stability of the model) by confirming the existence of same-sign panel causality running unidirectionally from the growth rate of autonomous demand to the investment share. Our results call for national economic policies aimed at promoting the components of autonomous demand that act as locomotives of growth in each country.

Is autonomous demand really autonomous in the United States? An asymmetric frequency‐domain Granger causality approach

“…Girardi and Pariboni (2016) find that autonomous demand exerts a long‐run effect on GDP in the United States, but also that there is bidirectional Granger causality between the two variables in the short run. Perez‐Montiel and Erbina (2020) find similar results for a panel of 16 European economies. These findings do not entirely validate the supermultiplier model (which stresses that autonomous demand drives both the cycle and the trend of output and, thus, suggests that Granger causality runs unidirectionally from autonomous demand to output also in the short run).…”

Growth, investment share and the stability of the Sraffian Supermultiplier model in the U.S. economy (1985–2017)

“…By reviewing the few papers that have already performed empirical tests for the Supermultiplier model, we can identify two different types of experiments performed by the authors. The first kind tries to identify if autonomous expenditures explain the level of output (Girardi & Pariboni, 2016; Goes, Moraes, & Gallo, 2018; Pérez‐Montiel & Erbina, 2020), while the second aims to test, in a broad sense, the investment function of the model, looking for a relationship between investment and growth rates (Braga, 2020; Girardi & Pariboni, 2016, 2020; Pérez‐Montiel & Erbina, 2020). In some cases, the authors take into account the investment share, while in others, it is considered the level of investment or its growth rate.…”

“…By reviewing the few papers that have already performed empirical tests for the Supermultiplier model, we can identify two different types of experiments performed by the authors. The first kind tries to identify if autonomous expenditures explain the level of output (Girardi & Pariboni, 2016;Goes, Moraes, & Gallo, 2018;Pérez-Montiel & Erbina, 2020), while the second aims to test, in a ( 13) h * = v(g z + )…”

“…broad sense, the investment function of the model, looking for a relationship between investment and growth rates (Braga, 2020;Girardi & Pariboni, 2016Pérez-Montiel & Erbina, 2020). In some cases, the authors take into account the investment share, while in others, it is considered the level of investment or its growth rate.…”

Permanent Demand and Private Investment in the General theory: an empirical investigation

“…Most authors consider that credit consumption is the best candidate to be used as proxy of autonomous consumption (see Pariboni, 2016;Lavoie, 2016;and Fiebiger and Lavoie, 2019, among others). However, empirical research has faced problems when including credit consumption as autonomous component of final demand (see Girardi and Pariboni, 2016;Gallo, 2019;Haluska et al, 2019;and Pérez-Montiel and Manera, 2020). Thus, we have decided to consider consumption to be completely induced.…”