The Sraffian Supermultiplier and Cycles: Theory and Empirics

Growth, cycles, and residential investment

“…This horizon has proven to be long enough for the variables' levels return to their steady states, such that the responses converge to zero. This novel procedure first appears in Nikiforos et al (2021), and provides a further assessment of impulse-response analyses. 13 The full IRF charts are available in the Appendix section.…”

“…These papers find support for SSM approach, but cannot speak to the implicit prediction of cyclicality. Nikiforos et al (2021), on the other hand, provide a critical reassessment of SSM theory. The authors emphasize that SSM theory implicitly predicts that investment lags the cycle, whereas their empirical results provide clear evidence that aggregate investment leads the business cycle.…”

“…With the theoretical motivations put above incorporated into the SVAR identifications, Impulse-Response Functions (IRFs) analyze how each endogenous variable reacts to a one-standard deviation structural shock to the other system variables. In addition, this study presents a novel visualization technique, first explored in Nikiforos et al (2021), from which cyclical trajectories are extracted from IRFs. By using these two tools in conjunction, quarterly data for the US economy over the 1949Q1-2020Q4 period indicate a clockwise cycle in the (u, g) and (u, g R ) planes, thus providing further evidence that aggregate investment and its residential rubric lead the business cycle.…”