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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 3: The Generation of the Accelerator Coefficient

Hyman P. Minsky


3. The generation of the accelerator coefficient Even though the accelerator coefficient has been used in a considerable number of business cycle models, there has been relatively little in the literature on the mechanism by which its value is determined. In this chapter I wish to do the following: (a) examine statements by a number of authors as to the mechanism by which the value of the accelerator is determined, and (b) set out the relevant factors which enter into the determination of the value of the accelerator coefficient. These relevant factors will form the basis for the theoretical analysis of the behavior of business firms which follows. The examination of the statements of the mechanism which determines the value of the accelerator will not be comprehensive; rather it will be limited to the remarks of a few authors. As was mentioned earlier, at least three different concepts as to the nature of the accelerator coefficient can be identified. These are: 1. The accelerator as a structural parameter. 2. The accelerator as a coefficient of induced investment. 3. The accelerator as a coefficient of realized investment. Prior to taking up the rationalizations for the use of the accelerator which have been put forward, it is necessary to clarify these differing concepts. If the aggregate accelerator coefficient is interpreted to be a structural parameter, then it is derived from the production function. Typically in such models the production function states that...

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