Does Investment Call the Tune? Empirical Evidence and Endogenous Theories of the Business Cycle

José Tapia Granados ()

A chapter in Contradictions: Finance, Greed, and Labor Unequally Paid, 2013, pp 229-259 from Emerald Group Publishing Limited

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.

Keywords: Business cycle theories; investment and profits; Keynesian economics; Marxian theory (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
https://www.emerald.com/insight/content/doi/10.110 ... 7230(2013)0000028009
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:rpeczz:s0161-7230(2013)0000028009

DOI: 10.1108/S0161-7230(2013)0000028009

Access Statistics for this chapter

More chapters in Research in Political Economy from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().