This paper presents a very small macroeconomic model which can explain the stylized facts concerning the cyclical properties of fixed and inventory investment, and applies it to detrented data of Germany, USA and UK. The model is formulated in continuous time. Its central conceptual tool is the Second Order Accelerator of investment and production. The new aspect of this paper is that the stochastic formulation of the inventory equation incorporates errors in the variables as well as errors in the equations.
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics and Econometrics
- Management Science and Operations Research
- Industrial and Manufacturing Engineering