On nonlinear theories of economic cycles and the persistence of business cycles (Q579106): Difference between revisions

This paper is an attempt to revive the theory of endogeneous business cycles. Section II explores the dynamic structure of various linear and nonlinear theories of business cycles, including the wage share- employment model of William Goodwin, the profit-investment model of Kalecki and income-investment model of Kaldor, with the emphasis placed on the importance of limit-cycle theories in macroeconomic dynamics. Section III develops a profit-accumulation model which generalizes Goodwin and Kaldor, and is capable of generating sustained endogenous cycles. This model consists of two differential equations. The first equation describes the rate of capital accumulation as a function of profits and the capital stock, while the second equation hypothesizes that profits rise when investment exceeds saving, and fall when saving exceeds investment. Saving and investment are both functions of profits and the capital stock. Using the Poincaré-Bendixson theorem, the paper shows that this dynamic system is capable of creating its own cycles. These cycles are self-correcting, fluctuate within limits, and are characterized by fluctuations in profits, capital accumulation and employment. The last section of the paper provides a numerical simulation to demonstrate the properties of the model. The reference section contains a useful guide to earlier contributions to the theory of business cycles.