Corporate Profit Growth, Macroeconomic Expectations and Fiscal Policy Volatility

Abstract

This study examines how specific macroeconomic conditions influence US Corporate Profit Growth in a dynamic trend framework. Using Autoregressive Distributed Lag (ARDL) co-integration approach, this study evaluates short and long-run dynamics of corporate profit growth in an environment characterized by specific macroeconomic conditions. Our results show that trends in corporate profit growth are not entirely immune to macroeconomic perturbations or constrained economic conditions as recent corporate profit growth conditions seem to suggest. We find that although modeled macroeconomic conditions (Note 1) have no statically significant impact on corporate profit growth in the short run; in the long run, conditions such as macroeconomic uncertainty, inflation expectation and fiscal policy volatility depresses or have significant constraining effect on corporate profit growth.