Abstract
This paper establishes a second order accelerator model (Hillinger [1] [2]) in discrete time. More specifically, we present a three-equation structural model in order to examine the behavior over time of capital. Our purpose is the analysis of investment cycles, defined as the quasi-periodic cyclical motion of capital. It is demonstrated that when the trigonometric oscillation is the case, the system is dynamically stable. In addition, we extend the analysis, introducing an exogenous credit term, the interest rate on loans, as an unknown function of time in the behavioral equation of investors. We infer that the introduction of this credit term results in an alternative equilibrium level of capital.
Highlights
Business cycles are eminently dynamic phenomena to which many definitions have attributed
Woitek [18] and Barnett, Gandolfo and Hillinger [19] examined the business cycle stylized facts following an empirical approach. This ability of the second order accelerator models to comply with the stylized facts, which imply a major role for investment in the fluctuations of economic activity, makes them a very important mechanism of interpreting investment cycles
We propose a second order accelerator model in discrete time as a mechanism to provide an explanation of the endogenous origination of investment cycles
Summary
Business cycles are eminently dynamic phenomena to which many definitions have attributed. An extension of the Samuelson multiplier-accelerator model was proposed by Dassios, Zimbidis and Kontzalis [10] who incorporated delayed variables in the initial model Their analysis achieves to interpret the origination of stable business cycles if realistic and stochastic values of both the multiplier and the accelerator are concerned. Woitek [18] and Barnett, Gandolfo and Hillinger [19] examined the business cycle stylized facts following an empirical approach This ability of the second order accelerator models to comply with the stylized facts, which imply a major role for investment in the fluctuations of economic activity, makes them a very important mechanism of interpreting investment cycles. We propose a second order accelerator model in discrete time as a mechanism to provide an explanation of the endogenous origination of investment cycles.
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