Pseudo, or not? : neo-Goodwinian growth cycles with financial linkages

Barbosa-Filho and Taylor (2006) propose a theoretical model with the Goodwin mechanism (profit-led economic activity and profit-squeeze distribution of income) that generates the Goodwin pattern (a counter-clockwise cycle in activity-labor share space), which fits data well. Stockhammer and Michell (2017) investigate a three-dimensional model in output, labor share and firms' debt, and demonstrate that the inclusion of the financial linkage produces the Goodwin pattern in simulations even if demand is not profit-led (or weakly wage-led). This paper extends neo-Goodwinian theory to include the valuation ratio q. In two different models, we corroborate that the Goodwin pattern can indeed arise in simulations without profit-led demand when a financial linkage is present. Further, the Keynesian distributive cycle theory we build on clearly distinguishes between short run (usually profit-led) cycles, and a long run (potentially wage-led) steady state. In the two models discussed here, redistribution has no steady state effects.