Understanding Kalecki-Levy Corporate Profit Decomposition

  • The Kalecki-Levy profit decomposition is a first principles way to understand the drivers of corporate profit margins using top-down economic flow data.
  • The decomposition is based on an accounting identity, so by definition it is true.
  • The Kalecki-Levy model is not a leading indicator and is backwards looking. However, it is a very useful mental model to think through implications of big macro drivers like fiscal policy and household behavior.
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