Second-order accelerator of investment: The case of discrete time

This paper presents a discrete time version of Hillinger's (1992,2005) second order accelerator model that investigates the dynamic behavior of capital, for pedagogical purposes. Such a version is put forward as a means of improving student acquaintance with the analysis of investment cycles -defined as quasi-periodic cyclic movements of capital-and with the convergence towards the steady-state when capital is subjected to trigonometric oscillations. In addition, we extend the analysis, introducing the exogenous interest rate on loans in the behavioral equation of investors. It is inferred that the introduction of this credit term results in a lower equilibrium level of capital. (c) 2015 Elsevier Ltd. All rights reserved.