Capital Demand Driven Business Cycles: Mechanism and Effects

We develop a tractable macroeconomic model that captures dynamic behaviors across multiple timescales, including business cycles. The is anchored in capital demand framework reflecting an interactions-based process whereby firms determine needs and make investment decisions at the micro level. derive equations for aggregate from this setting embed them Solow growth economy. As result, we obtain closed-form dynamical system with which study economic fluctuations their impact on long-term growth. For realistic parameters, has two attracting equilibria: one economy contracts it expands. This bi-stable configuration gives rise to quasiperiodic fluctuations, characterized by economy's prolonged entrapment either contraction or expansion mode punctuated rapid alternations between them. identify underlying endogenous mechanism as coherence resonance phenomenon. In addition, admits stochastic limit cycle likewise capable of generating fluctuations; however, show these cannot be realized they induce unrealistic dynamics. further find while powered can cause substantial excursions equilibrium path, such deviations vanish long run supply converge.