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Effective Demand In The Recent Evolution Of The US Economy

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Executive Summary

The authors present strong empirical evidence favoring the role of effective demand in the US economy, in the spirit of Keynes and Kalecki. Their inference comes from a statistically well-specified VAR model constructed on a quarterly basis from 1980 to 2008. US output is their variable of interest, and it depends (in their specification) on the wage share, OECD GDP, taxes on corporate income, other budget revenues, credit, and the interest rate. The first variable was included in order to know whether the economy under study is wage led or profit led. The second represents demand from abroad. The third and fourth make up total government expenditure and their arguments regarding these are based on Kalecki's analysis of fiscal policy.

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