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Book ChapterDOI

Does investment call the tune? Empirical evidence and endogenous theories of the business cycle

01 Dec 2012-Vol. 28, pp 229-259
TL;DR: The role of investment in the business cycle can be classified into two main groups, exogenous and endogenous, according to the way they explain economic fluctuations as discussed by the authors, either as responses of the economy to factors that are external (exogenous shocks) or as upturns and downturns of the economic system internally generated (by endogenous factors).
Abstract: Theories of the business cycle can be classified into two main groups, exogenous and endogenous, according to the way they explain economic fluctuations – either as responses of the economy to factors that are external (exogenous shocks) or as upturns and downturns of the economic system internally generated (by endogenous factors). In endogenous theories, investment is generally a key variable to explain the dynamic status of the economy. This essay examines the role of investment in endogenous theories. Two contrasting views on how changes in investment and profitability push the economy towards expansion or contraction are represented by the insights of Kalecki, Keynes, Matthews and Minsky versus those of Marx and Mitchell. Hyman Minsky claimed that investment ‘calls the tune’ to indicate that investment is the only variable not determined by other variables, so that future profits, investment and the dynamic status of the economy are determined by current investment and investment in the near past. However, this hypothesis does not appear to be supported by available empirical data for 251 quarters of the US economy. Statistical evidence rather supports the hypothesis of causality in the direction of profits determining investment and, in this way, leading the economy towards boom or bust.

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Citations
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Journal ArticleDOI
TL;DR: The authors argue that it was not competitive devaluation that restored growth after the 2001 crisis, but default on state debt caused by the previous destruction of productive capital, and that the same holds for the policies of "austerity", which are designed to reduce debt and raise profitability.
Abstract: The ultimate cause of crises in capitalism is lack of profitability. The Keynesian and Austerians (the supporters of austerity measures), deny this. So their solutions to crises do not work. Keynesian state-induced stimulus programs (redistributive, monetary, and fiscal) cannot overcome the underlying tendency for profitability to fall. The same holds for the policies of "austerity," which are designed to reduce debt and raise profitability. These conclusions are particularly relevant for the weaker Eurozone economies in the midst of the euro crisis. In a case study of Argentina, we argue that it was not competitive devaluation that restored growth after the 2001 crisis, but default on state debt caused by the previous destruction of productive capital.

25 citations

01 Jan 2015
TL;DR: SOLIDAR as mentioned in this paper is a European network of membership based Civil Society Organisations who gather several millions of citizens throughout Europe and worldwide, and voices the values of its member or ganisations to the EU and international institutions across the three main policy sectors; social affairs, lifelong learning and international cooperation.
Abstract: This publication has been produced with the fi nancial support of the European Union. The information contained in this publication does not necessarily refl ect the position or opinion of the European Commission. SOLIDAR is a European network of membership based Civil Society Organisations who gather several millions of citizens throughout Europe and worldwide. SOLIDAR voices the values of its member or ganisations to the EU and international institutions across the three main policy sectors; social affairs, lifelong learning and international cooperation.

13 citations

Book ChapterDOI
19 Oct 2016
TL;DR: In this article, the authors examine and challenge the Financial Instability Hypothesis (FIH) developed by Hyman Minsky and his adherents, and propose an alternate perspective on financial instability and risk, in light of the history of risk management within Canada's housing finance sector.
Abstract: The precise relationships between neoliberalization, financialization, and rising risk are still being debated in the literature. This paper examines, and challenges, the Financial Instability Hypothesis (FIH) developed by Hyman Minsky and his adherents. In this perspective, the level of financial risk builds over time as participants orient their behavior in relation to assessments of past levels of risk performance, leading them to overly optimistic valuation estimates and increasingly risky behavior with each subsequent cycle. However, there are problems with this approach, and many questions remain, including how participants modify their exposure to risk over time, how risk is scaled, and who benefits from changes in exposure to risk. This paper examines such questions and proposes an alternate perspective on financial instability and risk, in light of the history of risk management within Canada’s housing finance sector. The rise of financialization in Canada has been accompanied by shifts in the sectoral and scalar locus of risk within the housing sector, from the federal state, to lower levels of government, third-sector organizations, and finally, private households. In each case, the transfer of risk has occurred as participants in each stage sought to reduce their own risk exposure in light of realistic and even pessimistic (not optimistic) expectations deriving from past exposure, contradicting basic assumptions of Minsky’s FIH. This is the process that has driven the neoliberalization of housing finance in Canada, characterized by the socialization of lender risk while households increasingly take on the financial and social risks relating to shelter.

6 citations

Journal ArticleDOI
TL;DR: Minsky's theory of financial instability helps clarify how Marxist theory can explain the highly financialised capitalism of today, and the crisis which started in 2008 as mentioned in this paper, and the combination of instability and stagnation which results from an excess supply of loanable capital.
Abstract: Minsky’s theory of financial instability helps clarify how Marxist theory can explain the highly financialised capitalism of today, and the crisis which started in 2008. The advanced economies currently have high realised profits in the productive sector and lagging rates of investment. Shareholder pressures encourage corporate strategies which focus on stock-market ratings and MA low interest rates; recurrent boom and bust in asset markets; the fuelling of huge increases in household and government debt; and the combination of instability and stagnation which results from an excess supply of loanable capital.

3 citations

References
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Book
01 Jan 1987
TL;DR: In this article, the authors present a model of the business cycle based on single factors of production (SOPs) and show that SOPs can be used to predict the future of the economy.
Abstract: Preface.- 1. Fluctuations in Major Economic Variables.- 1.1. Periodic Patterns and Stylized Facts.- 1.2. The Measurement of the Business Cycle.- 1.2.1. Economic Indicators.- 1.2.1.1. Harvard Barometer.- 1.2.1.2. NBER Indicators.- 1.2.1.3. Indicators in Germany.- 1.2.1.4. Diagnosis and Prognosis by Means of Indicators.- 1.2.2. Capacity Utilization.- 1.2.2.1. Concepts Based on Single Factors of Production.- 1.2.2.2. Concepts Based on Production Functions.- 1.2.2.3. Wharton School Index and Surveys.- 2. Shock-Dependent Business Cycle Theories.- 2.1. Discrete-Time Shock-Dependent Models.- 2.1.1. Linear Models of the Cycle.- 2.1.1.1. The Basic Samuelson Model.- 2.1.1.2. Hicks' Linear Accelerator.- 2.1.1.3. The Influence of Inventories.- 2.1.1.4. Monetary Aspects of the Cycle.- 2.1.2. Non-Linear Multiplier-Accelerator Models.- 2.1.2.1. Ceiling and Floor in the Hicks Model.- 2.1.2.2. The Influence of Ratchet Effects.- 2.2. Continuous-Time Shock-Dependent Models.- 2.3. The Kalecki Model and Mixed Difference-Differential Equations.- 2.4. The Relevance of Shock-Dependent Business Cycle Theories.- 3. Business Cycle Theory and Exogenous Shocks.- 3.1. The Political Business Cycle.- 3.1.1. Governmental Behavior as the Cause of Business Cycles.- 3.1.2. Implications of the Political Business Cycle.- 3.2. The Theory of Stochastic Business Cycles.- 3.2.1. Business Cycle Models with Stochastic Exogenous Influences.- 3.2.2. A Stochastic Business Cycle Model.- 3.3. The Rational Expectations Approach to Business Cycles.- 3.3.1. Expectations and Rationality in Economic Theory.- 3.3.2. The New Classical Macroeconomics.- 3.3.3. Rational Expectations Business Cycle Models.- 4. Shock-Independent Business Cycle Theorie.- 4.1. A Linear Shock-Independent Growth Cycle Model.- 4.2. Goodwin's Quasi-Non-Linear Accelerator.- 4.3. Non-Linear Theories of the Cycle.- 4.3.1. Kaldor's Non-Linear Investment and Savings Functions.- 4.3.2. The Poincare-Bendixson Theorem and the Existence of Limit Cycles.- 4.3.2.1. Chang/Smyth's Reformulation of the Kaldor Model.- 4.3.2.2. The Non-Linear Phillips Curve and the Cycle.- 4.3.2.3. Non-Walrasian Macroeconomics and the Business Cycle.- 4.3.3. Predator-Prey Interpretations of the Business Cycle.- 4.3.4. The Lienard-van der Pol Equation.- 4.3.4.1. The Uniqueness of Limit Cycles.- 4.3.4.2. The Kaldor Model as a Lienard Equation.- 4.3.5. The Hopf Bifurcation in Business Cycle Theory.- 4.3.5.1. The Hopf Bifurcation in the Continuous-Time Case.- 4.3.5.2. The Hopf Bifurcation in the Discrete-Time Case.- 5. Complex Motion in Business Cycle Models.- 5.1. Non-Linearities and Chaotic Movements.- 5.1.1. Chaos in Discrete-Time Models.- 5.1.2. Chaos and Business Cycles.- 5.1.3. Chaos in Higher-Dimensional Systems.- 5.1.4. Numerical Techniques and the Empirical Evidence of Chaos.- 5.2. Catastrophe Theory and Business Cycle Theory.- 5.2.1. Basic Ideas of Catastrophe Theory.- 5.2.2. The Kaldor Model in the Light of Catastrophe Theory.- 5.3. Structural Instability and Business Cycle Theory - Conclusions.- References.- Name Index.

104 citations

Book
01 Jan 1979

90 citations


"Does investment call the tune? Empi..." refers background in this paper

  • ...…The Keynesian school Since The General Theory presented a theory of comparative statics, though containing key elements to develop a dynamic theory (Robinson, 1979), it was left for economists following Keynes’s tradition to develop such a theory, that is, a Keynesian theory of the business cycle....

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BookDOI
16 Dec 2013

80 citations


"Does investment call the tune? Empi..." refers background in this paper

  • ...The encyclopedia edited by Glasner and Cooley (1997) is a wealth of information. pathway would be here from high wages to low profits, and from low profits to falling investment and the lack of effective demand with unsold goods that characterizes recessions....

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