Testing a Goodwin model with general capital accumulation rate

TL;DR

This paper tests a modified Goodwin model with a general capital accumulation rate, showing improved empirical fit and suggesting its usefulness as a baseline for more complex endogenous growth cycle models.

Contribution

It introduces a modified Goodwin model with a flexible capital accumulation rate and demonstrates improved empirical performance over previous implementations.

Findings

Near perfect agreement with empirical equilibrium employment rates

Significantly better estimates of equilibrium wage shares

Model serves as a useful starting point for advanced growth cycle models

Abstract

We perform econometric tests on a modified Goodwin model where the capital accumulation rate is constant but not necessarily equal to one as in the original model (Goodwin, 1967). In addition to this modification, we find that addressing the methodological and reporting issues in Harvie (2000) leads to remarkably better results, with near perfect agreement between the estimates of equilibrium employment rates and the corresponding empirical averages, as well as significantly improved estimates of equilibrium wage shares. Despite its simplicity and obvious limitations, the performance of the modified Goodwin model implied by our results show that it can be used as a starting point for more sophisticated models for endogenous growth cycles.