A Non‐linear Model of the Trade Cycle: Mathematical Reflections on Hugh Hudson's Classic

Abstract

Hugh Hudson's classic article on A Model of the Trade Cycle has never, to the best of our knowledge, received the serious attention it deserved. It was written in what we would like to call the classic Hicks‐Kaldor mode, i.e. relying on ingenious diagrammatic techniques for expository purposes, and, indeed, developing an innovative model of the trade cycle where interaction of monetary and real forces were modelled in terms of elements common to the classic nonlinear endogenous models of these two pioneers. In this paper we reconsider the analytical contents of Hudson's classic, and its expository technique, in the light of later, mathematical, approaches to the same topic. It is a clear example of how a mathematical reading and reformulation of an economically motivated geometric method proves fruitful in furthering the frontiers of economic analysis. Our conclusion is that there is still much to be gained in the expository style adopted by Hudson, especially when viewed mathematically; but, more importantly, there are innovative suggestions and still relevant reflections on theorising and understanding actual performances of advanced industrial economies. Above all Hudson's classic is permeated with the policy underpinnings of a rich model of the trade cycle.