Estimating the Lagged Response of Profitability on Labour Ratio
DOI:
https://doi.org/10.15353/rea.v17i4.6284Keywords:
Global Vector Autoregressive Model, impulse response functions (IRF)., Granger causalityAbstract
This paper investigates recent trends of production factor – including both capital and labour – ratios in the EU-27 based on national accounts data. These output elasticities are typically expected to be constant, however, both theoretically and empirically, these assumptions are frequently violated for a variety of reasons.
In this paper a lagged response is introduced and investigated: changes of profitability can affect labour force adjustments with a delay. Granger causality tests confirm lagged behaviour. Structural VAR estimations show the strongest impact over the span of two to five quarters and the effect is moderate.
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