Edited by Dimitri B. Papadimitriou
Chapter 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 primarily 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 investment goods and the volume of realized investment; that is, we have to consider 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. In particular their analysis of the supply side of the investment goods markets...
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