Business Cycle


Business cycle - Identifying



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Business cycle - Identifying

  • The problem of how business cycles come about is therefore inseparable from the problem of how a capitalist economy functions.



Business cycle - Identifying

  • 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



Business cycle - Upper turning points of business cycle, commodity prices and freight rates

  • There is often a close timing relationship between the upper turning points of the business cycle, commodity prices and freight rates, which is shown to be particularly tight in the grand peak years of 1873, 1889, 1900 and 1912.



Business cycle - Spectral analysis of business cycles

  • Recent research employing spectral analysis has confirmed the presence of Kondratiev waves in the world GDP dynamics at an acceptable level of statistical significance.[non-primary source needed] 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.[non-primary source needed]



Business cycle - Cycles or fluctuations?

  • In recent years economic theory has moved towards the study of economic fluctuation rather than a 'business cycle' – though some economists use the phrase 'business cycle' as a convenient shorthand. For Milton Friedman 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.



Business cycle - Explanations

  • If the economy is operating with less than full employment, i.e., with high unemployment, Keynesian theory states that monetary policy and fiscal policy can have a positive role to play in smoothing the fluctuations of the business cycle.



Business cycle - Explanations

  • There are a number of alternative heterodox economic theories of business cycles, largely associated with particular schools or theorists. There are also some divisions and alternative theories within mainstream economics, notably real business cycle theory and credit-based explanations such as debt deflation and the financial instability hypothesis.



Business cycle - Exogenous vs. endogenous

  • Within mainstream economics, the debate over external (exogenous) versus internal (endogenous) being the causes of the economic cycles, with the classical school (now neo-classical) arguing for exogenous causes and the underconsumptionist (now Keynesian) school arguing for endogenous causes



Business cycle - Exogenous vs. endogenous

  • 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, the market will move from crisis to crisis



Business cycle - Exogenous vs. endogenous

  • The view of the economic cycle as caused exogenously dates to Say's law, and much debate on endogeneity or exogeneity of causes of the economic cycle is framed in terms of refuting or supporting Say's law; this is also referred to as the "general glut" debate.



Business cycle - Exogenous vs. endogenous

  • There has been some resurgence of neoclassical approaches in the form of real business cycle (RBC) theory



Business cycle - Exogenous vs. endogenous



Business cycle - Exogenous vs. endogenous

  • Contrarily, in the heterodox tradition of Jean Charles Léonard de Sismondi, Clement Juglar, and Marx the recurrent upturns and downturns of the market system are an endogenous characteristic of it.



Business cycle - Exogenous vs. endogenous

  • The 19th century school of Underconsumptionism also posited endogenous causes for 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.



Business cycle - Keynesian

  • Paul Samuelson's "oscillator model" is supposed to account for business cycles thanks to the multiplier and the accelerator



Business cycle - Keynesian

  • In the Keynesian tradition, Richard Goodwin accounts for cycles in output by the distribution of income between business profits and workers wages






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