Early Nonlinear Modelling in Economic Analysis: The Hicks Model for Greece Revisited

The present paper discusses the transition from linear modelling to the first nonlinear models in economic analysis. In this vein, an important contribution was J. Hicks’s A Contribution to the Theory of the Trade Cycle where he developed his own endogenous model of the cycle. Hicks thought that fluctuations in investment,– caused by nonlinear changes in autonomous investment and the acceleration principle governing induced investment – led to an adjustment process taking place throughout many periods. In this paper we introduce some modifications regarding the econometric estimation of Hicks’s nonlinear model and an empirical application for Greece (1960-2007) takes place demonstrating the almost ideal fit of the model.