Working Paper: NBER ID: w24287
Authors: Gauti B. Eggertsson; Jacob A. Robbins; Ella Getz Wold
Abstract: The macroeconomic data of the last thirty years has overturned at least two of Kaldor’s famous stylized growth facts: constant interest rates, and a constant labor share. At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin’s Q, and a divergence between the marginal and the average return on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy, i.e., the emergence of a non-zero-rent economy, along with forces that have led to a persistent long term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new stylized macroeconomic facts.
Keywords: Monopoly Power; Macroeconomics; Market Power; Interest Rates; Wealth Inequality
JEL Codes: E3; E5; E6; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in monopoly profits (D42) | increase in financial wealth-to-income ratios (G59) |
| increase in monopoly profits (D42) | increase in Tobin's q (D25) |
| decrease in natural rate of interest (E43) | stable average return on capital (G31) |
| increase in markups (D43) | increase in average returns on capital (G31) |