Investment, autonomous demand and long-run capacity utilization: an empirical test for the Euro Area

Abstract

This paper reviews and empirically tests the validity and policy conclusions of the Sraan Supermultiplier model (SSM) and the modied Neo-Kaleckian model after the inclusion of autonomous components of aggregate demand. First, we theoretically assess whether the SSM may constitute a complex variant of the Neo-Kaleckian model. In this sense, it is shown that results compatible with the SSM can be obtained by implementing a set of mechanisms in a modied Neo-Kaleckian model.Second, the paper empirically tests the main implications of the models in the Euro Area, based on Eurostat data. In particular, the discussion outlines the short and long-run relation between autonomous demand and output, by testing cointegration and causality with a VECM model. Moreover, the role accounted by both theories to the rate of capacity utilization is empirically assessed, through a time-series estimation of the Sraan and Neo-Kaleckian investment functions. While conrming the theoretical relation between autonomous demand and output in the long run, the results show that capacity utilization still plays a key role in the short-run adjustment mechanism. Therefore, admitting that Keynesian results may hold even after the traverse, our work suggests to be Kaleckian in the short run and Sraan in the long run.

On the adjustment of capacity utilisation to aggregate demand: Revisiting an old Sraffian critique to the Neo-Kaleckian model

“…6 For a theoretical and empirical critique of Nikiforos' approach see Girardi and Pariboni (2019), Gahn and González (2020) and Gahn (2020). For stationarity in capacity utilisation in other countries see Gahn and González (2019) and Gallo (2019).…”