Demand Regimes Research Articles

Dynamic Pricing Problem in The High Demand Regime

Dynamic Pricing Problem in The High Demand Regime

A wage-led or profit-ledge demand regime: the case of Jordan (1990-20220)

Purpose- Recently, the Jordanian economy has been finding it increasingly challenging to create sufficient job opportunities and absorb the new labor market entrants and hence, reduce unemployment. The economy must achieve healthy and persistent economic growth. Within this context, this paper looks at the relationship between income distribution of labor and capital on economic growth. In other words, the overall purpose of this paper is to examine whether the Jordanian economy is profit-led or wage-led. Methodology- To examine the functional distribution of income in Jordan, the paper uses the period 1990-2020 (annual data) and time series techniques including stationarity test, lag length selection criteria, and augmented autoregressive distributed lag (ARDL) bounds test for cointegration. Findings- Based on the period 1990 –2020, the results indicate that the demand regime in Jordan is wage-led and not profit-led. In more specific terms, a one-percentage-point increase in the profit share decreases output by 0.08 percent. Conclusion- To rise-up to the growth and unemployment challenges that face the Jordanian economy, the government would be well-advised if it ensures that nominal wages increase in line with inflation as well as productivity. In addition, the government should adopt a wage-led strategy that rests on labour market policies whose aims are to pre-distribute income (such as minimum wage and better education and health policies) and redistribute income through progressive taxes.

The Staples Thesis, local models and competitiveness: the Western Australian economy over the 2001–2011 resource boom

ABSTRACT Conventionally, the Staples Thesis constitutes a hypothesis about both the historical and the geographical particularity of the developmental trajectories of resource-dependent economies (Staples Theory) and a methodology that prioritizes contextual or local knowledge (Staples Method). Situating the Staples Thesis in the conceptual framework of regulation theory, this paper develops a spatial econometric model of the dynamics of resource-dependent economies that is sensitive to place-based contingency. This model is grounded in a conceptual framework that distinguishes between a productivity regime and a demand regime whose qualitative properties depend on the assemblage of governance, regulatory and institutional norms that determine the coherence of the relationship between the structure of production and consumption. Within the limits of data availability, a spatial extension of a reduced-form Kaldorian growth model is employed to empirically test Staples Theory by focusing on the differential impact of both the demand regime and the productivity regime on the relative economic performance of Western Australian localities over the course of the recent (2001–11) resource boom.

Reviewing demand regimes in open economies with Penn World Table data

AbstractThis paper uses the Penn World Table dataset to examine capacity utilization response to changes in the wage share in six developed countries from 1960 to 2019. Our vector autoregression model allows regression coefficients and volatilities to be time‐varying in nature. A rolling window shows that capacity utilization response to the wage share is unstable. We find that a 1‐standard deviation shock to the wage share generates a significant negative capacity utilization response in the U.S. and U.K. However, a rise in the wage share decreases capacity utilization of the remaining sample countries only conditional on exogenous wage share changes.

Centring construction in the political economy of housing: variegated growth regimes after the Keynesian construction state

AbstractThe Keynesian demand regime that existed until the 1970s was characterised by governments steering demand and employment through housing and infrastructure investments. By the 1980s, Western countries began to retreat from these capital-intensive subsidies and turned to the stimulation of homeownership-spreading private mortgage markets, but with three different ideal-typical trajectories until 2008. In construction-repressive countries, like Germany, growing exports were to fill the void of the withdrawing construction engine; in countries with construction booms, like Spain, the mortgage credit expansion temporarily generated another long construction cycle. Conversely, in countries with mortgage booms only, like the UK, mortgages exploded and generated more consumption, but no proportional construction output. We explain the divergence into different trajectories through a policy feedback mechanism: parties in construction (export) economies tend to favour construction (export) policies. While exports, construction and mortgages became alternative drivers of growth, all three trajectories have their downsides which surfaced post-2008 and make them inherently unstable.

Learning from distant cousins? Post-Keynesian Economics, Comparative Political Economy, and the Growth Models approach

Since the global financial crisis there has been growing interest in Post-Keynesian macroeconomic theory by political economists. In particular, the recent Growth Models approach in Comparative Political Economy (CPE) draws heavily on Kaleckian macroeconomics of demand regimes. This paper, firstly, traces the disintegration of nineteenth-century political economy and highlights that many streams within heterodox economics are a continuation of the political economy project, as are the sub-fields of CPE and International Political Economy in the social sciences. Secondly, the paper gives an overview of the Growth Models approach and its relation to Post-Keynesian Economics (PKE). It clarifies different strategies of identifying growth models empirically, namely GDP growth decomposition versus analysing growth drivers, and it highlights changes in growth models since the global financial crisis. Finally, it identifies opportunities and challenges that emerge from a continued engagement of PKE with political economy and with CPE in particular.

Option-implied lottery demand and IPO returns

We study the impact of time-varying lottery demand on first-day returns and the poor long-term performance of IPOs. Lottery demand – measured in terms of option-implied probability weighting – is associated with significantly higher first-day returns, tantamount to higher IPO underpricing and more money left on the table. Interacting the time variation in lottery demand with cross-sectional expected skewness reveals that IPO returns are particularly driven by the interaction between market-wide lottery demand and asset-specific lottery characteristics. When expected skewness meets low lottery demand, there is virtually no effect of skewness on first-day returns. In the long run, IPOs issued in high lottery demand regimes are more likely to perform poorly for up to five years after the IPO.

Endogenous income distribution and aggregate demand: Empirical evidence from heterogeneous panel structural vector autoregression

AbstractThis paper presents a novel empirical investigation into demand and distribution dynamics using a heterogeneous panel structural vector autoregression model for a panel of 10 emerging economies during the 1970–2017 period. Following the Kaleckian tradition, the theoretical analysis is based on a dynamic macro model where distributive shares and labor productivity are determined endogenously by introducing conflicting‐claims theory of inflation and Kaldor–Verdoorn effects. The paper indicates profit‐led demand regime only in the short run and profit‐squeeze effects when allowing for the contemporaneous effect of labor share on capacity utilization and capital accumulation. However, after incorporating the contemporaneous effect of demand on labor share and thus controlling for the short‐term effect of pro‐cyclical labor productivity on labor share, the results provide evidence for wage‐led demand and wage‐squeeze effects. These results underline how the importance of addressing endogeneity issues when estimating demand and distribution regimes and how different assumptions about the interactions among demand, distribution, and labor productivity result in diverse findings.

A growth regime approach to demand, distribution, and employment with endogenous NAIRU dynamics

This study builds a growth regime model to analyse demand, income distribution, and employment rate. It also examines the causes and effects of the endogenous dynamics of the non-accelerating inflation rate of unemployment (NAIRU) from Régulationist and post-Keynesian perspectives. Specifically, this study (1) explores how demand and distribution regimes are established; (2) identifies the stability conditions for the multi-feedback mechanism among demand, distribution, and employment under different regimes; and (3) reveals how different endogenous degrees of NAIRU affect the dynamic behaviour of macroeconomic variables within a growth regime. We identify four types of growth regimes: two types of demand regimes (i.e. wage-led and profit-led) and two types of distribution regimes (i.e. goods market-led and labour market-led). We also demonstrate that the multi-feedback mechanism among demand, distribution, and employment under different growth regimes needs particular institutional coordination to realise stability. Moreover, we show that a certain endogenous degree of NAIRU may induce perpetual cycles in some growth regimes, whereas the stability of other growth regimes is independent of NAIRU’s endogeneity. Thus, our growth regime approach confirms the primary conclusions of the Régulation theory: an economy has business cycles and growth patterns specific to its institutional structures.

Corporate debt, endogenous dividend rate, instability and growth

AbstractIn a neo‐Kaleckian growth‐model, we endogenize the dividend rate and corporate debt in the long run and investigate the possibility of multiple equilibria and instability in the economy. We find that the economy is in a wage‐led demand and debt‐burdened growth regime. However, both debt‐led and debt‐burdened demand regimes are possible. In some instances, the speed of the adjustment parameter related to the dividend dynamics plays a crucial role in stabilizing the economy. Otherwise, the economy may lose its stability and gives birth to limit cycles. A rise in the floor level of the targeted dividend–capital ratio has a destabilizing effect on the economy. The same is true for a rise in the interest rate. Moreover, a significant rise in the interest rate may cause instability in the economy. Therefore, a lower value of the floor level of the targeted dividend–capital ratio and a lower level of interest rate are desirable for promoting stability in the economy.

Profit-led in effect or in appearance alone? Estimating the Irish demand regime given the influence of multinational enterprises

Profit-led in effect or in appearance alone? Estimating the Irish demand regime given the influence of multinational enterprises

Fundamentos institucionales del crecimiento dirigido por la demanda: una nueva agenda de investigación

This paper presents an introduction to the theory of demand-driven growth models within the field of Comparative Political Economy. First, it offers an analytical scheme with the fundamental characteristics of this new research agenda proposed by Baccaro & Pontusson (2016), such as the typology of models and the main variables that determine them. Secondly, we analyze the existing relationship with demand regimes (wage-led/profit-led) and we propose an approach based on investment behavior as a determinant of growth models. Finally, we apply empirically this approach to five European economies in the period 1995-2018. The main conclusion is that the research agenda of growth models has the potential to renew both Comparative Political Economy and demand regime studies, as well as to provide a deeper interpretation of the recent evolution of European economies.

A note on ‘Wage-led versus profit-led demand regimes: the long and the short of it’

The aggregative and structural approaches are the main approaches used to investigate the US demand regime. They have reported mixed findings whereby the former tends to find profit-led results and the latter tends to find wage-led results. Blecker (2016) suggests that those conflicting findings can be explained, at least in part, by the different time dimensions captured by the two approaches. That is because the US economy tends to be profit-led in the short run and wage-led in the long run. This note discusses and extends Blecker's analysis. An alternative interpretation of the findings of studies using the structural approach is offered, suggesting that their conclusions rest on their handling of the short run. Specifically, the structural approach fails to find cointegration relations among integrated variables in most equations. That absence means it fails to pick up the stronger effect of the wage share on consumption in the long run, which is a key mechanism explaining different regimes across time horizons. The note concludes by briefly discussing other possible explanations for the conflicting results reported in the empirical literature.

Distribution, wealth and demand regimes in historical perspective: the USA, the UK, France and Germany, 1855–2010 Online Appendices

Distribution, wealth and demand regimes in historical perspective: the USA, the UK, France and Germany, 1855–2010 Online Appendices

Demand and growth regimes in finance-dominated capitalism and the role of the macroeconomic policy regime: a post-Keynesian comparative study on France, Germany, Italy and Spain before and after the Great Financial Crisis and the Great Recession

We contribute to the recent debates on demand and growth regimes in modern finance-dominated capitalism linking them to the post-Keynesian research on macroeconomic policy regimes. We examine the demand and growth regimes, as well as the macroeconomic policy regimes for the big four Eurozone countries, France, Germany, Italy and Spain, for the periods 2001–2009 and 2010–2019. First, our approach supports the usefulness of the identification of demand and growth regimes according to growth contributions of the main demand components and financial balances of the macroeconomic sectors. This allows for an understanding of the demand sources of growth, or stagnation, if there is a lack of demand, of how these sources are financed and of potential financial instabilities and fragilities. Second, when it comes to the macroeconomic policy drivers of demand and growth regimes, as well as their respective changes, we show that the exclusive focus on fiscal policies, as in the previous literature, is too limited and that it is the macroeconomic policy regime which matters here, i.e. the combination of monetary, fiscal and wage policies, as well as the open economy conditions.

The Macroeconomic Effects of Financialization and the Wage Gap between Blue and White Collar Workers

In a post-Keynesian growth model with two types of workers, an attempt is taken to understand changes in financial behaviour and income distribution and their macroeconomic causes and consequences. For a relatively strong speed of adjustment in the financial market and a relatively weak reserve army effect, a stable steady state is achieved in the wage-led demand regime. An endogenous and perpetual business cycles may emerge in both the regimes. While in some scenario, a contraction in the wage gap between white and blue-collar employments can make the steady state unstable, in a profit-led demand regime, a rise in the wage gap can destabilize the economy. A more regulated financial market is desirable for ensuring the economy’s stability in a weak wage-led or a weak profit-led demand regime. A more regulated labour market and a rise in unionization are desirable as these can mitigate income inequality.

Omitted-variable bias in demand-regime estimations: the role of household credit and wage inequality in Brazil

In the Kaleckian theoretical framework, an economy's demand regime is characterized as either wage-led or profit-led depending on the relative effect of an increase in the wage share on consumption, investment, and net exports. Based on this framework, a vast empirical literature has focused on estimating demand regimes in numerous countries. Although they contribute to a better understanding of the relationship between distribution and demand in different economies and time periods, they also face various critiques on theoretical and methodological grounds. This paper aims to address one dimension of these critiques by investigating a potential omitted-variable bias in the estimated relationship between distribution and demand in the Brazilian economy between 1997 and 2014. Our results suggest that when controlling for some of the relevant factors in Brazil's inclusive growth experience of the early twenty-first century, namely wage inequality, commodity prices, and household credit, the empirical characterization of the Brazilian demand regime as profit-led loses its statistical significance. Also, the demand-regime definition was found to be most sensitive to intra-wage distribution, confirming previous findings in the Kaleckian empirical literature for the Brazilian case.

Distribution, wealth and demand regimes in historical perspective: the USA, the UK, France and Germany, 1855–2010

Most empirical macroeconomic research is limited to the period since World War II. This paper analyses the effects of changes in income distribution and in private wealth on consumption and investment covering a period from as early as 1855 through to 2010 for the UK, France, Germany and the USA, based on the data set of Piketty and Zucman (2014). We contribute to the study of wealth effects, of financialization, and of the nature of demand regimes. We find that overall domestic demand has been wage-led in the USA, the UK and Germany. Total investment responds positively to higher wage shares, which is driven by residential investment. For corporate investment alone, we find a negative relation. Wealth effects are found to be positive and significant for consumption in the USA and the UK, but weaker in France and Germany. Investment is negatively affected by private wealth in the USA and the UK, but positively in France and Germany.

Wealth inequality and aggregate demand

AbstractThe paper investigates how including the distribution of wealth changes the demand effects of redistributing functional income. It develops a model with an endogenous wealth distribution and shows that the endogenous rise in wealth inequality resulting from a redistribution toward profits weakens the growth effects of this redistribution. Consequently, a wage‐led regime becomes more strongly wage‐led. A profit‐led regime on the other hand becomes less profit‐led and there may even be a regime switch––in this case the short‐run profit‐led economy becomes wage‐led in the long run due to the endogenous effects of wealth inequality. The paper thereby provides a possible explanation for the instability of demand regimes over time.

Transpiration increases under high-temperature stress: Potential mechanisms, trade-offs and prospects for crop resilience in a warming world.

The frequency and intensity of high-temperature stress events are expected to increase as climate change intensifies. Concomitantly, an increase in evaporative demand, driven in part by global warming, is also taking place worldwide. Despite this, studies examining high-temperature stress impacts on plant productivity seldom consider this interaction to identify traits enhancing yield resilience towards climate change. Further, new evidence documents substantial increases in plant transpiration rate in response to high-temperature stress even under arid environments, which raise a trade-off between the need for latent cooling dictated by excessive temperatures and the need for water conservation dictated by increasing evaporative demand. However, the mechanisms behind those responses, and the potential to design the next generation of crops successfully navigating this trade-off, remain poorly investigated. Here, we review potential mechanisms underlying reported increases in transpiration rate under high-temperature stress, within the broader context of their impact on water conservation needed for crop drought tolerance. We outline three main contributors to this phenomenon, namely stomatal, cuticular and water viscosity-based mechanisms, and we outline research directions aiming at designing new varieties optimized for specific temperature and evaporative demand regimes to enhance crop productivity under a warmer and dryer climate.