Heterodox
77-570: Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, government institutions, and private sector firms. There are many definitions of a business cycle. The simplest defines recessions as two consecutive quarters of negative GDP growth. More satisfactory classifications are provided by, first including more economic indicators and second by looking for more data patterns than
154-493: A Bayesian statistical paradigm. Later, economist Joseph Schumpeter argued that a Juglar cycle has four stages: Schumpeter's Juglar model associates recovery and prosperity with increases in productivity, consumer confidence , aggregate demand , and prices. In the 20th century, Schumpeter and others proposed a typology of business cycles according to their periodicity, so that a number of particular cycles were named after their discoverers or proposers: Some say interest in
231-425: A company enlarges its scale through taking over or merging with other companies. Land speculation In finance , speculation is the purchase of an asset (a commodity , goods , or real estate ) with the hope that it will become more valuable shortly. It can also refer to short sales in which the speculator hopes for a decline in value. Many speculators pay little attention to the fundamental value of
308-460: A company stock's current earnings. Intellectual capital contributes to a stock's return growth. Unlike long-term trends, medium-term data fluctuations are connected to the monetary policy transmission mechanism and its role in regulating inflation during an economic cycle. At the same time, the presence of nominal restrictions in price setting behavior might impact the short-term course of inflation. In recent years economic theory has moved towards
385-404: A cycle that needed to be explained and instead viewing their apparently cyclical nature as a methodological artefact. This means that what appear to be cyclical phenomena can actually be explained as just random events that are fed into a simple linear model. Thus business cycles are essentially random shocks that average out over time. Mainstream economists have built models of business cycles based
462-458: A firm's off-balance-sheet exposures" including "environmental or social liabilities present in a market or company but not explicitly accounted for in traditional numeric valuation or mainstream investor analysis". Hence, they make the prices better reflect the true quality of operation of the firms. Shorting may act as a "canary in a coal mine" to stop unsustainable practices earlier and thus reduce damages and form market bubbles. Auctions are
539-487: A form of fluctuation. In economic activities, a cycle of expansions happening, followed by recessions, contractions, and revivals. All of which combine to form the next cycle's expansion phase; this sequence of change is repeated but not periodic. The explanation of fluctuations in aggregate economic activity is one of the primary concerns of macroeconomics and a variety of theories have been proposed to explain them. Within economics, it has been debated as to whether or not
616-520: A heterodox branch in economics until being systematized in Keynesian economics in the 1930s. Sismondi's theory of periodic crises was developed into a theory of alternating cycles by Charles Dunoyer , and similar theories, showing signs of influence by Sismondi, were developed by Johann Karl Rodbertus . Periodic crises in capitalism formed the basis of the theory of Karl Marx , who further claimed that these crises were increasing in severity and, on
693-407: A leading case. As well-formed and compact – and easy to implement – statistical methods may outperform macroeconomic approaches in numerous cases, they provide a solid alternative even for rather complex economic theory. In 1860 French economist Clément Juglar first identified economic cycles 7 to 11 years long, although he cautiously did not claim any rigid regularity. This interval of periodicity
770-434: A method of squeezing out speculators from a transaction, but they may have their own perverse effects by the winner's curse . The winner's curse is, however, not very significant to markets with high liquidity for both buyers and sellers, as the auction for selling the product and the auction for buying the product occur simultaneously, and the two prices are separated only by a relatively small spread. That mechanism prevents
847-534: A network of free enterprises searching for profit. The problem of how business cycles come about is therefore inseparable from the problem of how a capitalist economy functions. In the United States, it is generally accepted that the National Bureau of Economic Research (NBER) is the final arbiter of the dates of the peaks and troughs of the business cycle. An expansion is the period from a trough to
SECTION 10
#1732786828309924-658: A number of attempts over the years to introduce regulations and restrictions to try to limit or reduce the impact of speculators. States often enact such financial regulation in response to a crisis. Note for example the Bubble Act 1720 , which the British government passed at the height of the South Sea Bubble to try to stop speculation in such schemes. It remained in place for over a hundred years until repealed in 1825. The Glass–Steagall Act passed in 1933 during
1001-445: A one period change, that is unusual over the course of one or two years, is often relegated to “noise”; an example is a worker strike or an isolated period of severe weather. The individual episodes of expansion/recession occur with changing duration and intensity over time. Typically their periodicity has a wide range from around 2 to 10 years. There are many sources of business cycle movements such as rapid and significant changes in
1078-422: A peak and a recession as the period from a peak to a trough. The NBER identifies a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production". There is often a close timing relationship between the upper turning points of the business cycle, commodity prices, and freight rates, which
1155-497: A recession is defined as two declining periods of GDP. Expansion may be caused by factors external to the economy, such as weather conditions or technical change, or by factors internal to the economy, such as fiscal policies , monetary policies , the availability of credit , interest rates , regulatory policies or other impacts on producer incentives. Global conditions may influence the levels of economic activity in various countries. Economic contraction and expansion relate to
1232-418: A recession or depression. This debate has important policy consequences: proponents of exogenous causes of crises such as neoclassicals largely argue for minimal government policy or regulation ( laissez faire ), as absent these external shocks, the market functions, while proponents of endogenous causes of crises such as Keynesians largely argue for larger government policy and regulation, as absent regulation,
1309-739: A security and instead focus purely on price movements. In principle, speculation can involve any tradable good or financial instrument . Speculators are particularly common in the markets for stocks , bonds , commodity futures , currencies , cryptocurrency , fine art , collectibles , real estate , and financial derivatives . Speculators play one of four primary roles in financial markets, along with hedgers , who engage in transactions to offset some other pre-existing risk, arbitrageurs who seek to profit from situations where fungible instruments trade at different prices in different market segments, and investors who seek profit through long-term ownership of an instrument's underlying attributes. With
1386-541: A smaller extent periodically included commodity futures and foreign currencies (see Chua and Woodward, 1983). His fund was profitable almost every year, averaging 13% per year, even during the Great Depression , thanks to very modern investment strategies, which included inter-market diversification (it invested in stocks, commodities and currencies) as well as shorting (selling borrowed stocks or futures to profit from falling prices), which Keynes advocated among
1463-435: A solution. Statistical or econometric modelling and theory of business cycle movements can also be used. In this case a time series analysis is used to capture the regularities and the stochastic signals and noise in economic time series such as Real GDP or Investment. [Harvey and Trimbur, 2003, Review of Economics and Statistics ] developed models for describing stochastic or pseudo- cycles, of which business cycles represent
1540-559: A steady stream of enterprise . But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation. (1936:159)" Keynes himself enjoyed speculation to the fullest, running an early precursor of a hedge fund . As the Bursar of the Cambridge University King's College, he managed two investment funds, one of which, called Chest Fund, invested not only in the then 'emerging' market US stocks, but to
1617-696: A type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; in duration, business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar characteristics with amplitudes approximating their own. According to A. F. Burns: Business cycles are not merely fluctuations in aggregate economic activity. The critical feature that distinguishes them from
SECTION 20
#17327868283091694-647: A war was the Panic of 1825 . Business cycles in OECD countries after World War II were generally more restrained than the earlier business cycles. This was particularly true during the Golden Age of Capitalism (1945/50–1970s), and the period 1945–2008 did not experience a global downturn until the Late-2000s recession . Economic stabilization policy using fiscal policy and monetary policy appeared to have dampened
1771-485: Is also commonplace, as an empirical finding, in time series models for stochastic cycles in economic data. Furthermore, methods like statistical modelling in a Bayesian framework – see e.g. [Harvey, Trimbur, and van Dijk, 2007, Journal of Econometrics ] – can incorporate such a range explicitly by setting up priors that concentrate around say 6 to 12 years, such flexible knowledge about the frequency of business cycles can actually be included in their mathematical study, using
1848-411: Is concerned that the price might fall too far by harvest time. By selling his crop in advance at a fixed price to a speculator, he can now hedge the price risk and plant the corn. Thus, speculators can increase production through their willingness to take on risk (not at the loss of profit). Speculative hedge funds that do fundamental analysis "are far more likely than other investors to try to identify
1925-407: Is not stable over different time periods because of economic shocks , random fluctuations and development in financial systems . Ludvigson believes consumer confidence index is a coincident indicator as it relates to consumer's current situations. Winton & Ralph state that retail trade index is a benchmark for the current economic level because its aggregate value counts up for two-thirds of
2002-469: Is shown to be particularly tight in the grand peak years of 1873, 1889, 1900 and 1912. Hamilton expressed that in the post war era, a majority of recessions are connected to an increase in oil price. Commodity price shocks are considered to be a significant driving force of the US business cycle. Along these lines, the research in [Trimbur, 2010, International Journal of Forecasting ] shows empirical results for
2079-463: Is simply a higher-risk form of investment. Others define speculation more narrowly as positions not characterized as hedging. The U.S. Commodity Futures Trading Commission defines a speculator as "a trader who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements". The agency emphasizes that speculators serve important market functions, but defines excessive speculation as harmful to
2156-416: Is supposed to account for business cycles thanks to the multiplier and the accelerator. The amplitude of the variations in economic output depends on the level of the investment, for investment determines the level of aggregate output (multiplier), and is determined by aggregate demand (accelerator). Economic expansion An economic expansion is an increase in the level of economic activity , and of
2233-492: The Commodity Futures Trading Commission (CFTC) has proposed regulations aimed at limiting speculation in futures markets by instituting position limits. The CFTC offers three basic elements for their regulatory framework: "the size (or levels) of the limits themselves; the exemptions from the limits (for example, hedged positions) and; the policy on aggregating accounts for purposes of applying
2310-473: The Great Depression in the United States provides another example; most of the Glass-Steagall provisions were repealed during the 1980s and 1990s. The Onion Futures Act bans the trading of futures contracts on onions in the United States, after speculators successfully cornered the market in the mid-1950s; it remains in effect as of 2021 . The Soviet Union regarded any form of private trade with
2387-591: The World Food Programme . In 1935, the Indian government passed a law allowing the government partial restriction and direct control of food production (Defence of India Act, 1935). It included the ability to restrict or ban the trading in derivatives on food commodities. After achieving independence in 1947, India in the 1950s continued to struggle with feeding its population and the government increasingly restricted trading in food commodities. Just at
Business cycle - Misplaced Pages Continue
2464-530: The goods and services available. It is a period of economic growth as measured (for example) by a rise in real GDP . The explanation of fluctuations in aggregate economic activity between economic expansions and contractions ("booms" and "busts" within the " business cycle ") is one of the primary concerns of macroeconomics . Typically an economic expansion is marked by an upturn in production and in utilization of resources. Economic recovery and prosperity are two successive phases of expansion, whereas
2541-463: The price of oil or variation in consumer sentiment that affects overall spending in the macroeconomy and thus investment and firms' profits. Usually such sources are unpredictable in advance and can be viewed as random "shocks" to the cyclical pattern, as happened during the 2007–2008 financial crises or the COVID-19 pandemic . The first systematic exposition of economic crises , in opposition to
2618-629: The 19th and first half of the 20th century, specifically the period 1815–1939. This period started from the end of the Napoleonic wars in 1815, which was immediately followed by the Post-Napoleonic depression in the United Kingdom (1815–1830), and culminated in the Great Depression of 1929–1939, which led into World War II . See Financial crisis: 19th century for listing and details. The first of these crises not associated with
2695-545: The 19th century. ( See: Productivity improving technologies (historical) .) A table of innovations and long cycles can be seen at: Kondratiev wave § Modern modifications of Kondratiev theory . Since surprising news in the economy, which has a random aspect, impact the state of the business cycle, any corresponding descriptions must have a random part at its root that motivates the use of statistical frameworks in this area. There were frequent crises in Europe and America in
2772-645: The Committee of the Association for the Relief of the Manufacturing Poor, both identified the cause of economic cycles as overproduction and underconsumption , caused in particular by wealth inequality . They advocated government intervention and socialism , respectively, as the solution. This work did not generate interest among classical economists, though underconsumption theory developed as
2849-518: The appearance of the stock ticker machine in 1867, which removed the need for traders to be physically present on the stock exchange floor, stock speculation underwent a dramatic expansion through the end of the 1920s. The number of shareholders increased, perhaps, from 4.4 million in 1900 to 26 million in 1932. The view of what distinguishes investment from speculation and speculation from excessive speculation varies widely among pundits, legislators and academics. Some sources note that speculation
2926-575: The basis of which, he predicted a communist revolution . Though only passing references in Das Kapital (1867) refer to crises, they were extensively discussed in Marx's posthumously published books, particularly in Theories of Surplus Value . In Progress and Poverty (1879), Henry George focused on land 's role in crises – particularly land speculation – and proposed a single tax on land as
3003-417: The benefits of speculation: Let's consider some of the principles that explain the causes of shortages and surpluses and the role of speculators. When a harvest is too small to satisfy consumption at its normal rate, speculators come in, hoping to profit from the scarcity by buying. Their purchases raise the price, thereby checking consumption so that the smaller supply will last longer. Producers encouraged by
3080-408: The bubble is followed by a precipitous collapse fueled by the same phenomenon. Speculative bubbles are essentially social epidemics whose contagion is mediated by the structure of the market. Some economists link asset price movements within a bubble to fundamental economic factors such as cash flows and discount rates. In 1936, John Maynard Keynes wrote: "Speculators may do no harm as bubbles on
3157-707: The business cycle, notably the paradox of thrift , and today this previously heterodox school has entered the mainstream in the form of Keynesian economics via the Keynesian revolution. Mainstream economics views business cycles as essentially "the random summation of random causes". In 1927, Eugen Slutzky observed that summing random numbers, such as the last digits of the Russian state lottery, could generate patterns akin to that we see in business cycles, an observation that has since been repeated many times. This caused economists to move away from viewing business cycles as
Business cycle - Misplaced Pages Continue
3234-483: The business cycle. For almost 30 years, these economic data series are considered as "the leading index" or "the leading indicators"-were compiled and published by the U.S. Department of Commerce . A prominent coincident, or real-time, business cycle indicator is the Aruoba-Diebold-Scotti Index . Recent research employing spectral analysis has confirmed the presence of Kondratiev waves in
3311-430: The commercial convulsions of earlier centuries or from the seasonal and other short term variations of our own age is that the fluctuations are widely diffused over the economy – its industry, its commercial dealings, and its tangles of finance. The economy of the western world is a system of closely interrelated parts. He who would understand business cycles must master the workings of an economic system organized largely in
3388-658: The cycling of monetary systems. Since 1960, World GDP has increased by fifty-nine times, and these multiples have not even kept up with annual inflation over the same period. Social Contract (freedoms and absence of social problems) collapses may be observed in nations where incomes are not kept in balance with cost-of-living over the timeline of the monetary system cycle. The Bible (760 BCE) and Hammurabi 's Code (1763 BCE) both explain economic remediations for cyclic sixty-year recurring great depressions, via fiftieth-year Jubilee (biblical) debt and wealth resets. Thirty major debt forgiveness events are recorded in history including
3465-660: The debt forgiveness given to most European nations in the 1930s to 1954. There were great increases in productivity , industrial production and real per capita product throughout the period from 1870 to 1890 that included the Long Depression and two other recessions. There were also significant increases in productivity in the years leading up to the Great Depression. Both the Long and Great Depressions were characterized by overcapacity and market saturation. Over
3542-452: The different typologies of cycles has waned since the development of modern macroeconomics , which gives little support to the idea of regular periodic cycles. Further econometric studies such as the two works in 2003 and 2007 cited above demonstrate a clear tendency for cyclical components in macroeconomic times to behave in a stochastic rather than deterministic way. Others, such as Dmitry Orlov , argue that simple compound interest mandates
3619-476: The economic crisis in former Eastern Bloc countries following the end of the Soviet Union in 1991. For several of these countries the period 1989–2010 has been an ongoing depression, with real income still lower than in 1989. In 1946, economists Arthur F. Burns and Wesley C. Mitchell provided the now standard definition of business cycles in their book Measuring Business Cycles : Business cycles are
3696-435: The economic cycle is framed in terms of refuting or supporting Say's law; this is also referred to as the " general glut " (supply in relation to demand) debate. Until the Keynesian revolution in mainstream economics in the wake of the Great Depression , classical and neoclassical explanations (exogenous causes) were the mainstream explanation of economic cycles; following the Keynesian revolution, neoclassical macroeconomics
3773-406: The economy is price discovery . On the other hand, as more speculators participate in a market, underlying real demand and supply can diminish compared to trading volume, and prices may become distorted. Speculators perform a risk-bearing role that can be beneficial to society. For example, a farmer might consider planting corn on unused farmland . However, he might not want to do so because he
3850-445: The economy to come to short run equilibrium at levels that are different from the full employment rate of output. These fluctuations express themselves as the observed business cycles. Keynesian models do not necessarily imply periodic business cycles. However, simple Keynesian models involving the interaction of the Keynesian multiplier and accelerator give rise to cyclical responses to initial shocks. Paul Samuelson 's "oscillator model"
3927-698: The economy. However, this was followed by stagflation in the 1970s, which discredited the theory. The second declaration was in the early 2000s, following the stability and growth in the 1980s and 1990s in what came to be known as the Great Moderation . Notably, in 2003, Robert Lucas Jr. , in his presidential address to the American Economic Association , declared that the "central problem of depression-prevention [has] been solved, for all practical purposes." Various regions have experienced prolonged depressions , most dramatically
SECTION 50
#17327868283094004-568: The existing theory of economic equilibrium , was the 1819 Nouveaux Principes d'économie politique by Jean Charles Léonard de Sismondi . Prior to that point classical economics had either denied the existence of business cycles, blamed them on external factors, notably war, or only studied the long term. Sismondi found vindication in the Panic of 1825 , which was the first unarguably international economic crisis, occurring in peacetime. Sismondi and his contemporary Robert Owen , who expressed similar but less systematic thoughts in 1817 Report to
4081-697: The fluctuations of a business cycle are attributable to external (exogenous) versus internal (endogenous) causes. In the first case shocks are stochastic, in the second case shocks are deterministically chaotic and embedded in the economic system. The classical school (now neo-classical) argues for exogenous causes and the underconsumptionist (now Keynesian) school argues for endogenous causes. These may also broadly be classed as "supply-side" and "demand-side" explanations: supply-side explanations may be styled, following Say's law , as arguing that " supply creates its own demand ", while demand-side explanations argue that effective demand may fall short of supply, yielding
4158-423: The high price further lessen the shortage by growing or importing to reduce the shortage. On the other side, when the price is higher than the speculators think the facts warrant, they sell. This reduces prices, encouraging consumption and exports and helping to reduce the surplus. Another service provided by speculators to a market is that by risking their own capital in the hope of profit, they add liquidity to
4235-483: The idea that they are caused by random shocks. Due to this inherent randomness, recessions can sometimes not occur for decades; for example, Australia did not experience any recession between 1991 and 2020. While economists have found it difficult to forecast recessions or determine their likely severity, research indicates that longer expansions do not cause following recessions to be more severe. According to Keynesian economics , fluctuations in aggregate demand cause
4312-581: The intent of gaining profit as speculation ( Russian : спекуляция ) and a criminal offense and punished speculators accordingly with fines, imprisonment, confiscation and/or corrective labor . Speculation was specifically defined in article 154 of the Penal Code of the USSR. Some nations have moved to limit foreign ownership of cropland to ensure that food is available for local consumption, while others have leased food land abroad despite receiving aid from
4389-541: The limits". The proposed position limits would apply to 28 physical commodities traded in various exchanges across the US. Another part of the Dodd-Frank Act established the Volcker Rule , which deals with speculative investments of banks that do not benefit their customers. Passed on 21 January 2010, it states that those investments played a key role in the 2007–2008 financial crisis . Proposals made in
4466-429: The liquidity in a market, and therefore promote an efficient market . This efficiency is difficult to achieve without speculators. Speculators take information and speculate on how it affects prices, producers and consumers, who may want to hedge their risks, needing counterparties if they could find each other without markets it certainly would happen as it would be cheaper. A very beneficial by-product of speculation for
4543-432: The market and make it easier or even possible for others to offset risk , including those who may be classified as hedgers and arbitrageurs. If any market, such as pork bellies , had no speculators, only producers (hog farmers) and consumers (butchers, etc.) would participate. With fewer players in the market, there would be a larger spread between the current bid and the asking price of pork bellies. Any new entrant in
4620-513: The market economy as due to exogenous influences, such as the State or its regulations, labor unions, business monopolies, or shocks due to technology or natural causes. Contrarily, in the heterodox tradition of Jean Charles Léonard de Sismondi , Clément Juglar , and Marx the recurrent upturns and downturns of the market system are an endogenous characteristic of it. The 19th-century school of under consumptionism also posited endogenous causes for
4697-421: The market who wanted to trade pork bellies would be forced to accept this illiquid market and might trade at market prices with large bid–ask spreads or even face difficulty finding a co-party to buy or sell to. By contrast, a commodity speculator may profit from the difference in the spread and, in competition with other speculators, reduce the spread. Some schools of thought argue that speculators increase
SECTION 60
#17327868283094774-486: The market will move from crisis to crisis. This division is not absolute – some classicals (including Say) argued for government policy to mitigate the damage of economic cycles, despite believing in external causes, while Austrian School economists argue against government involvement as only worsening crises, despite believing in internal causes. The view of the economic cycle as caused exogenously dates to Say's law, and much debate on endogeneity or exogeneity of causes of
4851-571: The overall GDP and reflects the real state of the economy. According to Stock and Watson, unemployment claim can predict when the business cycle is entering a downward phase. Banbura and Rüstler argue that industry production's GDP information can be delayed as it measures real activity with real number, but it provides an accurate prediction of GDP. Series used to infer the underlying business cycle fall into three categories: lagging , coincident , and leading . They are described as main elements of an analytic system to forecast peaks and troughs in
4928-516: The overall output of all goods and services, while the terms " inflation " and " deflation " refer to increasing and decreasing prices of commodities, goods and services in relation to the value of money. On the microeconomic level, expansion may involve enlarging the scale of a company . The ways of expansion include internal expansion and integration. Internal expansion means a company enlarges its scale through opening branches, inventing new products, or developing new businesses. Integration means
5005-549: The period since the Industrial Revolution, technological progress has had a much larger effect on the economy than any fluctuations in credit or debt, the primary exception being the Great Depression, which caused a multi-year steep economic decline. The effect of technological progress can be seen by the purchasing power of an average hour's work, which has grown from $ 3 in 1900 to $ 22 in 1990, measured in 2010 dollars. There were similar increases in real wages during
5082-520: The principles of successful investment in his 1933 report: "a balanced investment position... and if possible, opposed risks". It is controversial whether the presence of speculators increases or decreases short-term volatility in a market. Their provision of capital and information may help stabilize prices closer to their true values. On the other hand, crowd behavior and positive feedback loops in market participants may also increase volatility. The economic disadvantages of speculation have resulted in
5159-670: The proper functioning of futures markets. According to Benjamin Graham in The Intelligent Investor , the prototypical defensive investor is "one interested chiefly in safety plus freedom from bother". He adds that "some speculation is necessary and unavoidable, for, in many common-stock situations, there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone." Thus, many long-term investors, even those who buy and hold for decades, may be classified as speculators, excepting only
5236-453: The rare few who are primarily motivated by income or safety of principal and not eventually selling at a profit. Nicholas Kaldor has long argued for the price-stabilizing role of speculators, who tend to even out "price-fluctuations due to changes in the conditions of demand or supply", by possessing "better than average foresight". This view was later echoed by the speculator Victor Niederhoffer , in "The Speculator as Hero", who describes
5313-497: The relation between oil-prices and real GDP. The methodology uses a statistical model that incorporate level shifts in the price of crude oil; hence the approach describes the possibility of oil price shocks and forecasts the likelihood of such events. Economic indicators are used to measure the business cycle: consumer confidence index , retail trade index , unemployment and industry/service production index . Stock and Watson claim that financial indicators' predictive ability
5390-862: The so-called recurrence quantification correlation index to test correlations of RQA on a sample signal and then investigated the application to business time series. The said index has been proven to detect hidden changes in time series. Further, Orlando et al., over an extensive dataset, shown that recurrence quantification analysis may help in anticipating transitions from laminar (i.e. regular) to turbulent (i.e. chaotic) phases such as USA GDP in 1949, 1953, etc. Last but not least, it has been demonstrated that recurrence quantification analysis can detect differences between macroeconomic variables and highlight hidden features of economic dynamics. The Business Cycle follows changes in stock prices which are mostly caused by external factors such as socioeconomic conditions, inflation, exchange rates. Intellectual capital does not affect
5467-480: The study of economic fluctuation rather than a "business cycle" – though some economists use the phrase 'business cycle' as a convenient shorthand. For example, Milton Friedman said that calling the business cycle a "cycle" is a misnomer , because of its non-cyclical nature. Friedman believed that for the most part, excluding very large supply shocks, business declines are more of a monetary phenomenon. Arthur F. Burns and Wesley C. Mitchell define business cycle as
5544-659: The time the Forward Markets Commission was established in 1953, the government felt that derivative markets increased speculation, which led to increased food costs and price instabilities. In 1953 it finally prohibited options- and futures-trading altogether. The restrictions were not lifted until the 1980s. In the United States , following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
5621-561: The two quarter definition. In the United States , the National Bureau of Economic Research oversees a Business Cycle Dating Committee that defines a recession as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP , real income, employment, industrial production, and wholesale-retail sales." Business cycles are usually thought of as medium term evolution. They are less related to long-term trends, coming from slowly-changing factors like technological advances. Further,
5698-506: The winner's curse phenomenon from causing mispricing to any degree greater than the spread. Speculation is often associated with economic bubbles . A bubble occurs when the price for an asset exceeds its intrinsic value by a significant margin, although not all bubbles occur due to speculation. Speculative bubbles are characterized by rapid market expansion driven by word-of-mouth feedback loops , as initial rises in asset price attract new buyers and generate further inflation. The growth of
5775-577: The world GDP dynamics at an acceptable level of statistical significance. Korotayev & Tsirel also detected shorter business cycles, dating the Kuznets to about 17 years and calling it the third sub-harmonic of the Kondratiev, meaning that there are three Kuznets cycles per Kondratiev. Recurrence quantification analysis has been employed to detect the characteristic of business cycles and economic development . To this end, Orlando et al. developed
5852-457: The worst excesses of business cycles, and automatic stabilization due to the aspects of the government 's budget also helped mitigate the cycle even without conscious action by policy-makers. In this period, the economic cycle – at least the problem of depressions – was twice declared dead. The first declaration was in the late 1960s, when the Phillips curve was seen as being able to steer
5929-403: Was largely rejected. There has been some resurgence of neoclassical approaches in the form of real business cycle (RBC) theory. The debate between Keynesians and neo-classical advocates was reawakened following the recession of 2007. Mainstream economists working in the neoclassical tradition, as opposed to the Keynesian tradition, have usually viewed the departures of the harmonic working of
#308691