Ever since the Pasinetti Index (PI) was first proposed in the mid-to-late 1980s by Marc Lavoie and Mario Seccareccia, its objective was ultimately to serve as a norm for the conduct of monetary policy by securing the long-term stability between rentier and non-rentier income shares over time. This research was taking place during an era of the 1980s when the widely-held Kaldorian “stylized fact” about the long-term stability of factor shares was being empirically put to question, especially given the highly-publicized post-1970s bifurcation of the evolution of real wages vis-à-vis labour productivity growth.

Based on the innovative idea that monetary policy is, in essence, an incomes policy influencing the income of rentiers à la Keynes, what eventually came to be identified as the Pasinetti norm was inspired by the widely-popular early post-W.W. II “Fordist” policies to preserve the income share of workers by seeking to equalize real wage growth to labor productivity growth over time. Thus, as counterpart, the original PI objective was to equalize some measure of the real rate of interest, exogenously determined by the monetary authority, to the rate of productivity growth (or real wage growth) in the medium- and long-term, which when coupled with a labour-market incomes policy norm that ties real wages growth to productivity growth, could preserve the long-term stability of the overall functional distribution of income.

At the same time, however, the PI proposal was intended also to analyze its cyclical consequences via short-term variations in the index, which can influence income distribution both directly on the rentier income share but also indirectly on wage/profit shares, through its measured impact on real GDP growth and unemployment. In Lavoie and Seccareccia (1988) and Seccareccia and Lavoie (2016), the income-distribution channel of monetary policy was identified as an important mechanism impacting on both short-term and long-term macroeconomic performance. In this paper, we wish to study the interaction of these long-term and cyclical effects, whose purpose would be to frame better overall macroeconomic policy. To do so, we present some alternative measures of the PI that would try to disentangle the short- and long-term consequences on income distribution. We conclude that the PI and the corresponding Pasinetti interest-rate rule should be taken as a general framework for the conduct of monetary policy—rather than as a mechanical interest rate rule—whose purpose is to coordinate both fiscal and monetary policy to tackle income distribution and employment objectives over time.