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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.

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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.

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