Modelling accumulation: A theoretical and empirical application of the accelerator principle under uncertainty

Abstract

In this paper we derive a theoretical macro accumulation function, which relies on the accelerator principle and is complemented by utilizing capacity and profits. This investigation also accounts for several sources and kinds of uncertainty: exchange rates for financial uncertainty, oil prices for political uncertainty and interest rates for stock market uncertainty. The latter purports to account for the relationship between physical and financial investment. We also take on board the role of conventions in an attempt to account fully for uncertainty. In doing so, we include the relevant variables as deviations from their conventional levels. In the second part of the paper we estimate the investment function, by means of the system GMM in a panel of 12 OECD economies over the period 1970–2010.

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