The Foley Liquidity / Profit-Rate Cycle Model Reconsidered

Moreira, Helmar Nunes and Araujo, Ricardo Azevedo and Flaschel, Peter (2014): The Foley Liquidity / Profit-Rate Cycle Model Reconsidered.

Abstract

In this paper, we reconsider the Foley model of Liquidity / Profit-Rate Cycles where such cycles are generated as bifurcations from initially attracting steady states if a parameter of the model crosses a critical value, for example the growth rate of money supply as in the Foley paper. We employ a slightly modified version of the Foley model and provide sufficient conditions for the local asymptotic stability of its balanced growth path. A second theorem then shows the existence of a Hopf-bifurcation derived from such a stable situation by decreasing the growth rate of liquidity to a sufficient degree. The generated cycles are studied from the numerical point of view in addition.

• Item Type: MPRA Paper
• Language: English
• Keywords: Liquidity / Profit-Rate Cycle, Stability Conditions, Hopf-bifurcation.
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E64 - Incomes Policy ; Price Policy

References

Foley, D. (1986), Liquidity-profit rate cycles in a capitalist economy. Journal of Economic Behavior and Organization, 8, 363 – 376.

Goodwin, R.M., 1982, Essays in Economic Dynamics (Macmillan, London).

Hicks, J. (1950), A Contribution to the Theory of the Trade Cycle (Oxford University Press, Oxford).

Kalecki, M., 1969, Studies in the Theory of Business Cycles: 1933-1939 (Irwin, Homewood, IL).