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Samuelson's multiplier-accelerator model revisited

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  • Frank Westerhoff

Abstract

As demonstrated by Samuelson, the interplay between the multiplier analysis and the principle of acceleration may generate temporary business cycles. We extend Samuelson's seminal framework in the sense that investors now apply a nonlinear mix of extrapolative and regressive expectation formation rules to predict changes in national income. As it turns out, the emergence of booms and slumps may depend on the sentiment of the investors. If they are optimistic (pessimistic), the economy performs well (badly). Moreover, the model produces sustained and intricate fluctuations in economic activity for realistic values of the marginal propensity to consume and the capital to output ratio.

Suggested Citation

  • Frank Westerhoff, 2006. "Samuelson's multiplier-accelerator model revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 13(2), pages 89-92.
  • Handle: RePEc:taf:apeclt:v:13:y:2006:i:2:p:89-92
    DOI: 10.1080/13504850500390663
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    References listed on IDEAS

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    1. Ito, Takatoshi, 1990. "Foreign Exchange Rate Expectations: Micro Survey Data," American Economic Review, American Economic Association, vol. 80(3), pages 434-449, June.
    2. Sonnemans, Joep & Hommes, Cars & Tuinstra, Jan & van de Velden, Henk, 2004. "The instability of a heterogeneous cobweb economy: a strategy experiment on expectation formation," Journal of Economic Behavior & Organization, Elsevier, vol. 54(4), pages 453-481, August.
    3. Cecilia Chaing & Lindsay McSweeney, 2010. "A Behavioral Model of Rational Choice," CPI Journal, Competition Policy International, vol. 6.
    4. Puu, Tonu & Gardini, Laura & Sushko, Irina, 2005. "A Hicksian multiplier-accelerator model with floor determined by capital stock," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 331-348, March.
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    Citations

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    Cited by:

    1. Dalla, Eleni & Varelas, Erotokritos, 2016. "Second-order accelerator of investment: The case of discrete time," International Review of Economics Education, Elsevier, vol. 21(C), pages 48-60.
    2. Lines, Marji & Westerhoff, Frank, 2010. "Inflation expectations and macroeconomic dynamics: The case of rational versus extrapolative expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 246-257, February.
    3. Hohnisch, Martin & Westerhoff, Frank, 2008. "Business cycle synchronization in a simple Keynesian macro-model with socially transmitted economic sentiment and international sentiment spill-over," Structural Change and Economic Dynamics, Elsevier, vol. 19(3), pages 249-259, September.
    4. Wegener, Michael & Westerhoff, Frank & Zaklan, Georg, 2009. "A Metzlerian business cycle model with nonlinear heterogeneous expectations," Economic Modelling, Elsevier, vol. 26(3), pages 715-720, May.
    5. Matsumoto, Akio & Szidarovszky, Ferenc, 2015. "Nonlinear multiplier–accelerator model with investment and consumption delays," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 1-9.
    6. Ioannis Dassios & Alexandros Zimbidis & Charalambos Kontzalis, 2014. "The Delay Effect in a Stochastic Multiplier–Accelerator Model," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 3(1), pages 1-24, December.
    7. Sordi, Serena & Vercelli, Alessandro, 2012. "Heterogeneous expectations and strong uncertainty in a Minskyian model of financial fluctuations," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 544-557.
    8. Andrášik Ladislav, 2015. "Ergodic Axiom: The Ontological Mistakes in Economics," Creative and Knowledge Society, De Gruyter Open, vol. 5(1), pages 47-65, July.
    9. repec:kap:iaecre:v:18:y:2012:i:2:p:199-214 is not listed on IDEAS
    10. Ioannis K. Dassios & Mel T. Devine, 2016. "A macroeconomic mathematical model for the national income of a union of countries with interaction and trade," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 5(1), pages 1-15, December.
    11. Christos Karpetis & Erotokritos Varelas, 2012. "Fiscal and Monetary Policy Interaction in a Simple Accelerator Model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(2), pages 199-214, May.
    12. Michael Wegener, 2014. "Heterogeneous expectations and debt in a growth model for a small open economy," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 125-136, April.
    13. Westerhoff Frank H., 2006. "Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(4), pages 1-17, December.

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