Estimating a Time-Varying Distribution-Led Regime

This paper estimates the distribution-led regime of the US economy for the period 1947–2019. We use a time varying parameter model, which allows for continuous changes in the regime over time. To the best of our knowledge this is the first paper that has attempted to do this. This innovation is important, because there is no reason to expect that the regime of the US economy (or any economy for that matter) will remain constant over time. On the contrary, there are significant reasons that point to changes in the regime. We find that the US economy became more profit-led in the first postwar decades until the 1970s and has become less profit-led since. In the last fifteen years of our sample the effect of changes in distribution on economic activity is statistically insignificant.