Review of Keynesian Economics

Demand-driven Goodwin cycles with Kaldorian and Kaleckian features

Rudiger von Arnim * * and Jose Barrales *

Keywords: endogenous cycles and growth, profit squeeze, forced saving


Goodwin's original endogenous growth cycle describes a supply-driven counter-clockwise movement in employment rate and labor share (Goodwin 1967). Such cycles are observed in (US) data. Similarly, counter-clockwise cycles exist between utilization rate and labor share, and utilization rate and employment rate. This paper presents a critical discussion of two demand-driven frameworks to explain these cycles, namely a Goodwin–Kaldor model and a Goodwin–Kalecki model. The two models share important features. The main difference lies in the approach to the determination of the distribution of income. We argue that the Goodwin–Kalecki model's ‘profit squeeze’ is the preferable approach.

Author Notes

Corresponding author. Comments by Nelson Barbosa-Filho, Korkut Erturk, Peter Flaschel, Michalis Nikiforos, Codrina Rada, Lance Taylor, an anonymous referee, and especially Peter Skott are gratefully acknowledged. All remaining errors are of course ours.

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