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Modeling Investment Cycles: A Theoretical Analysis
Department of Economics, University of Macedonia, Thessaloniki, Greece
Department of Balkan, Slavic & Oriental Studies, University of Macedonia, Thessaloniki, Greece
Department of Economics, University of Macedonia, Thessaloniki, Greece
- 1 Department of Economics, University of Macedonia, Thessaloniki, Greece
- 2 Department of Balkan, Slavic & Oriental Studies, University of Macedonia, Thessaloniki, Greece
- 3 Department of Economics, University of Macedonia, Thessaloniki, Greece
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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.
KeywordsInvestment CyclesSecond Order AcceleratorCapitalExogenous Credit Term
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