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Induced Investment and Business Cycles

Hyman P. Minsky

Edited by Dimitri B. Papadimitriou

This unique volume presents, for the first time in publication, the original Ph.D. thesis of Hyman P. Minsky, one of the most innovative thinkers on financial markets. Dimitri B. Papadimitriou’s introduction places the thesis in a modern context, and explains its relevance today. The thesis explores the relationship between induced investment, the constraints of financing investment, market structure, and the determinants of aggregate demand and business cycle performance. Forming the basis of his subsequent development of financial Keynesianism and his ‘Wall Street’ paradigm, Hyman Minsky investigates the relevance of the accelerator-multiplier models of investment to individual firm behaviour in undertaking investment dependent on cost structure. Uncertainty, the coexistence of other market structures, and the behaviour of the monetary system are also explored.
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Chapter 2: Some Accelerator–Multiplier Models

Hyman P. Minsky

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2. Some accelerator-multiplier models 1. INTRODUCTION In spite of the inability of statistical studies to establish that a measurable accelerator coefficient exists, many models of the business cycle have appeared in which the accelerator coefficient is an institutional or engineering constant. In addition to such constant valued accelerator models, models of the business cycle have appeared in which the value of the accelerator coefficient varies over the business cycle. In general the mechanism by which the change in the value of the accelerator coefficient is brought about is not explicitly stated. Assumptions as to the existence of a floor or a ceiling to investment due to the technological limitations upon disinvestment and to the existence of a full employment ceiling (total or sectoral) are made. In addition, a third variety of accelerator business cycle model may be distinguished, one in which the model is subject to random shocks. In this chapter models from each of these classes will be taken up. Variants of such models will be constructed. We will see whether or not these models are consistent with the hypothesis that the business cycle of experience can be best analysed by assuming that the value of the accelerator coefficient varies in a systematic manner over the business cycle, and that the systematic variation in the value of the accelerator coefficient can be imputed to the economic phenomena associated with the different levels and rates of changes in income. In this chapter we...

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