Author(s)

Eleni Dalla^1*, Christos Karpetis², Erotokritos Varelas¹

¹Department of Economics, University of Macedonia, Thessaloniki, Greece.
²Department of Balkan, Slavic & Oriental Studies, University of Macedonia, Thessaloniki, Greece.

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.

Investment Cycles, Second Order Accelerator, Capital, Exogenous Credit Term

Dalla, E. , Karpetis, C. and Varelas, E. (2016) Modeling Investment Cycles: A Theoretical Analysis. Modern Economy, 7, 336-344. doi: 10.4236/me.2016.73037.