"Monetary Behavior and Induced Investment" [2004] ELECD 202; in Minsky, P. Hyman; Papadimitriou, B. Dimitri (eds), "Induced Investment and Business Cycles" (Edward Elgar Publishing, 2004)

Book Title: Induced Investment and Business Cycles

Editor(s): Minsky, P. Hyman; Papadimitriou, B. Dimitri

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843762164

Section: Chapter 9

Section Title: Monetary Behavior and Induced Investment

Number of pages: 38

Extract:

9. Monetary behavior and induced
investment
1. INTRODUCTION

Business cycle models based upon the interaction of the accelerator and
multiplier have been mainly concerned with the implications of the formal
model. That is, the pure model generates the cyclical time series, and the
expository elements in the writings of the accelerationists have been pri-
marily directed at the interpretation of the formal results. The processes by
which investment is induced have not been considered in detail. We have
taken up the transformation of the change in aggregate demand into the
demand for investment goods. We now have to relate the demand for invest-
ment goods and the volume of realized investment; that is, we have to con-
sider the supply side of the investment goods markets.
Accelerator and multiplier models have considered the supply side of the
investment market by introducing either lags, due to the gestation period of
the capital goods, or ceilings, due to either full employment or the limited
productive capacity of the investment goods industries.1 It often seems as if
such factors are introduced mainly to get around the embarrassing results
of the linear model. It is true that a non-linear accelerator-multiplier model
is not limited to the unsatisfactory alternative states of a linear model. The
non-linearity can be introduced in the formal model, as Goodwin and Hicks
do, or in a model which determines the value of the accelerator coefficient.
Neither Goodwin nor Hicks satisfactorily rationalizes the non-linearities
they assume. ...