The role of profits in econometric models

Summary

The relative size of profits has dramatically fallen during the seventies. As profits are supposed to play a dominant and strategic role in western economies, the question rises whether model builders have been aware of this role and in which sectors of the economy profits are assumed to influence the behaviour of economic agents. In this contribution the econometric role of profits in three main fields of interest has been investigated, viz. wage and price formation, various demand equations and, finally, relations regarding the labour market. It appears that in empirically estimated econometric models, like the Brookings and Wharton E.F.U. Models for the United States and the Treasury Model for the United Kingdom, the role of profits is very limited. More important but still too restricted is this role in various Dutch models.