Hicksian Non-Linearity

William A. Brock
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William A. Brock: University Of Wisconsin

Chapter 11 in Value and Capital: Fifty Years Later, 1991, pp 310-330 from Palgrave Macmillan

Abstract: Abstract In Value and Capital (Hicks, 1939) Hicks strongly foreshadows the view made famous in his Contribution to the Theory of The Trade Cycle (Hicks, 1950). In the culmination of Chapter XXIV, one can see the germination of a theory of the trade cycle that was later to appear in The Trade Cycle. A stripped-down version of Hicks’s Trade Cycle macro model postulates an investment accelerator function of the difference of lagged output together with a consumption function of lagged output that combines with material balance to generate a unique unstable steady state. The model is completed by postulating an exogenously imposed floor on investment and ceilings on invest-ment and output. In symbols it can be written: F [ Y ( t ) ] = C [ Y ( t − 1 ) ] + I [ Y ( t − 1 ) − Y ( t − 2 ) ] $$F[Y(t)] = C[Y(t - 1)] + I[Y(t - 1) - Y(t - 2)]$$ where Y(t) is aggregate output at date t, C(-) is the consumption function, I(·) is the investment function, and F is a function of output. Both F and I are non-linear to capture the effects of floors and ceilings.

Keywords: Trade Cycle; Null Model; Exogenous Shock; Arch Model; Real Business Cycle (search for similar items in EconPapers)
Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:pal:intecp:978-1-349-11029-2_19

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DOI: 10.1007/978-1-349-11029-2_19

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