TITLE:
Modeling Investment Cycles: A Theoretical Analysis
AUTHORS:
Eleni Dalla, Christos Karpetis, Erotokritos Varelas
KEYWORDS:
Investment Cycles, Second Order Accelerator, Capital, Exogenous Credit Term
JOURNAL NAME:
Modern Economy,
Vol.7 No.3,
March
25,
2016
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.