Evidence and Ideology in Macroeconomics: The Case of Investment Cycles

The paper reports the principal findings of a long term research
project on the description and explanation of business cycles. The
research strongly confirmed the older view that business cycles
have large systematic components that take the form of investment
cycles. These quasi-periodic movements can be represented as low
order, stochastic, dynamic processes with complex eigenvalues.
Specifically, there is a fixed investment cycle of about 8 years
and an inventory cycle of about 4 years. Maximum entropy spectral
analysis was employed for the description of the cycles and
continuous time econometrics for the explanatory models. The
central explanatory mechanism is the second order accelerator,
which incorporates adjustment costs both in relation to the capital
stock and the rate of investment. By means of parametric resonance
it was possible to show, both theoretically and empirically how
cycles aggregate from the micro to the macro level. The same
mathematical tool was also used to explain the international
convergence of cycles. I argue that the theory of investment cycles
was abandoned for ideological, not for evidential reasons.
Methodological issues are also discussed.