Early Nonlinear Modelling in Economic Analysis: The Hicks Model for Greece Revisited

Michaelides, Panayotis G. and Belegri-Roboli, Athena and Arapis, Gerasimos (2009): Early Nonlinear Modelling in Economic Analysis: The Hicks Model for Greece Revisited.

Abstract

The present paper discusses the transition from linear modelling to the first nonlinear models in economic analysis. In this vein, an important contribution was J. Hicks’s A Contribution to the Theory of the Trade Cycle where he developed his own endogenous model of the cycle. Hicks thought that fluctuations in investment,– caused by nonlinear changes in autonomous investment and the acceleration principle governing induced investment – led to an adjustment process taking place throughout many periods. In this paper we introduce some modifications regarding the econometric estimation of Hicks’s nonlinear model and an empirical application for Greece (1960-2007) takes place demonstrating the almost ideal fit of the model.

• Item Type: MPRA Paper
• Language: English
• Keywords: Linear, Nonlinear, dynamics, Hicks, economics.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models

References

[1] Alexander, S. Mr. Harrod’s dynamic model. Economic Journal 60 (240), 724-39, 1950.

[2] Baumol, W., Benhabib, J. Chaos: Significance, Mechanism, and Economic Implications. Journal of Economic Perspectives, Vol. 3, No. 1, 77-105, 1989.

[3] Baumol, W.: Notes on some dynamic models. Economic Journal 58 (232), 506-21, 1948.

[4] Chow, G. China’s Economic Transformation, Blackwell Publishing, 2007.

[5] Colander, D., Pluralism and Heterodox Economics: Suggestions for an “Inside the Mainstream” Heterodoxy. Middlebury College Economics Discussion Paper No. 07-24, October, 2007.

[6] Day R. H.: Nonlinear dynamics and evolutionary economics. In Day, R.H., Chen, P. (eds.): Nonlinear Dynamics and Evolutionary Economics. Oxford University Press, New York and Oxford, 1993.

[7] Debreu, G.: Mathematical Economics. The New Palgrave: A Dictionary of Economics, Vol. 3, 401-03, 1987.

[8] Fontana, M.: Computer Simulations, Mathematics, and Economics. Rivista Internazionale di Scienze Economiche e Commerciali, 53(1), 96-124, 2006.

[9] Friedman, M., Essays in Positive Economics. University of Chicago Press, Chicago, 1953.

[10] Frisch, R., Propagation problems and impulse problems in dynamic economics (1933) In Bjerkholt, O.: Foundations of Modern Econometrics: The Selected Essays of Ragnar Frisch. Edward Elgar, Cheltenham and Northampton, 1995.

[11] Harrod, R. An essay in dynamic theory. Economic Journal 49 (193), 14-33 (1939).

[12] Hendry D., Morgan, M. The Foundations of Econometric Analysis. Cambridge University Press, Cambridge, 1995.

[13] Hicks, J. A Contribution to the theory of the Trade Cycle. Clarendon Press, Oxford, 1950.

[14] Kaldor, N. A model of the trade cycle. Economic Journal 50 (197), 78-92, 1940.

[15] Kalecki, M. A macrodynamic theory of business cycles. Econometrica 3(3), 327-44, 1935.

[16] Kalecki, M. A theory of the business cycle. Review of Economic Studies, 4 (2), 77-97, 1937.

[17] Michaelides, P. The Development of Non Linear Dynamics in Economic Analysis, in Kyamakya, K., Halang, W., Rulkov, R., Chedjou, J.C., Li, Z., Bouchachia, A. and Unger, H. (eds) : Recent Advances in Nonlinear Dynamics and Synchronization– Theory and Applications, Springer, Germany, Chapter 13, 2009.

[18] Nagatani K. Macroeconomic Dynamics. Cambridge University Press, Cambridge, 1981.

[19] Puu, T. Nonlinear Economic Dynamics. Springer-Verlag, Heidelberg and New York, 1993.

[20] Rappaport, S. Abstraction and Unrealistic Assumptions in Economics. Journal of Economic Methodology, 3(2), 215–236, 1996.

[21] Rosser, B. J. Jr. On the Complexities of Complex Economic Dynamics. Journal of Economic Perspectives, 13 (4), 169-192, 1999.

[22] Samuelson, P. Interactions between the multiplier analysis and the principle of acceleration. Review of Economics and Statistics 21 (2), 75-78, 1939.

[23] Thalberg, B. A reconsideration of Frisch’s original cycle model. (1990) In Velupillai, K.: Nonlinear and Multisectoral Macrodynamics: Essays in honour of Richard Goodwin. Macmillan, Basingstoke (1990)

[24] Tu, P. N.V., Dynamical Systems. Springer – Verlag, 1994.

[25] Tvede L. Business Cycles - The Business Cycle Problem from John Law to Chaos Theory. Harwood Academic Publishers, Amsterdam, 1998.