Talk:Business cycle/Archive 1

This is an archive of past discussions about Business cycle. Do not edit the contents of this page. If you wish to start a new discussion or revive an old one, please do so on the current talk page.

Archive 1

Discussions from 2004 to September 2008

Communist Manifesto

"It's interesting to note that Marx and Engels' 1848 specific demands in the Communist Manifesto are now almost wholly implemented throughout the once-capitalist world, with the sole exception of the abolishment of rents in land. This suggests that the Marxian analysis found some traction among decision-makers in the late 19th and early 20th centuries."

I deleted that. First, it isn't logical. If I accurately predict rain tomorrow, it doesn't follow I had any "traction" in the clouds, only that I understood enough about the underlying processes to predict where they were going.

Second, it isn't even relevant to the specific issue of the business cycle. Did those items help modify the swings of the business cycle, or compound them, or neither? --Christofurio 15:13, Jun 15, 2004 (UTC)

Certainly it is undeniable.

Which is undeniable? The first of the quoted sentences or the second. The second seems, to me, quite eminently deniable. --Christofurio 23:23, Apr 16, 2005 (UTC)

Overlap with economic cycle

this page overlaps with and thus repeats much of what appears in "the economic cycle". Shouldn't they be merged and one erased? Jdevine 19:42, 30 Jul 2004 (UTC)

Economic cycle now redirects here. Rd232 ^talk 00:48, 21 February 2006 (UTC)

Something that should be added to this page is the phases of the business cycle such as expansion, peak, contraction and trough.--Markie 04:46, 15 November 2007 (UTC)

Multiplier-Accelerator Effect

Should the Multiplier-Accelerator effect be included in this or is it under a different name and I'm too tired to see it?--Tiresais 14:16, 20 February 2006 (UTC)

They have their own articles: Accelerator effect and Multiplier (economics). Not sure how much overlap there is right now. Rd232 ^talk 00:48, 21 February 2006 (UTC)

I mean under causes of the Economic cycle, a quick link or brief explanation --Tiresais 17:18, 15 April 2006 (UTC)

Obscurity

I'd say this article is cluttered. In one sense, from the terse descriptions of each school of thought listed in what seems like no particular order, and in another, its willingness to concede those terms outlining causality (e.g. full employment-- extraneous technical terms) which are, within Wikipedia, obscure. For example, it attempts to explain how fluctuation may be linked to full employment without defining what full employment might mean in each specific case. Speaking as a layman, it is difficult to follow, and it reads POV to me as well. Bordello 10:49, 28 February 2006 (UTC)

It is also largely wrong, speaking as a academic economist. For example, the statements regarding rational expectations and deterministic cycles being inconsistent is demonstrably false -- among many others, Steve Spear and Rao Aiyagari have written down simple models with deterministic cycles.

Why is the Austrian model labeled "alternative"?

The Austrian model is certainly just as valid, if not moreso, than the model put forth in the main section of this article. Why is one considered "Alternative", and the other not? Salvor Hardin 10:10, 2 May 2006 (UTC)

The Austrian Schools model is the alternative model within the article as developed western countries currently do not follow the Austrian model, and due to that it is the "alternative" to the current system of central banks regulating the interest rate in order to control aggregate expenditure and demand, and also to reduce the movement away from potential GDP in the short term.

That's no reason to put it down as 'alternative'. The Austrian explanation is rejected by governments (not scholars) which reflects the financial inscentive of government to promote the model which advocates that they have uninhibited inflationary power. Wikipedia should not be influanced by politics. If governmental unpopularity is to be used as an excuse to marginalize a theory, then we should also marginalize the theory that marijuana is clinically safe.

Recient reverted large rewrite

I reverted an extensive rewrite of the article by User:Rochecon. This completly changed the focus of the article and deleted lots of stuff. I felt this was too great a change to leave as it was even though there was some good material there. The revision in question is [1] which I'd encourage others to look at to see what should be included in the main article. --Salix alba (talk) 15:51, 11 May 2006 (UTC)

NPOV?

What's the dispute, exactly? I'd like to add and reorganize a little. Who's gonna be mad? Mgw 07:03, 17 October 2006 (UTC)

As long as add and reorganize a little, trying your best to be neutral, I don't think there will be problems. Massive editing without explanation was the most recent problem. --Pgreenfinch 08:19, 17 October 2006 (UTC)

This content comes from the Real Business Cycle Theory article, but it is more appropriate here. I hope we can work it in, someone worked hard on it. Mgw 02:07, 24 October 2006 (UTC)

I think that information belongs on the RBC page, it is a little bit more oriented toward the merits of that concept. Too much in the introduction on this more basic concept will make it far less readable for anyone not already possessing a basic understanding of business cycles. I don't think there is much of a POV issue any more but I don't know how to clear it. Maybe only the person who tagged it can remove it? BlackVegetable 00:57, 30 March 2007 (UTC)

See two sections below

This content was an introduction to the Real Business Cycle Theory article, but it is more appropriate as an intro here. I hope we can work it in, someone worked hard on it. Mgw 02:08, 24 October 2006 (UTC)

Business Cycles

If we were to take snapshots of an economy at different points in time, no two photos would look alike. This occurs for two reasons:

Many advanced economies exhibit sustained growth over time. That is, snapshots taken many years apart will most likely depict higher levels of economy activity in the later period
There exist seemingly random fluctuations around this growth trend. Thus given two snapshots in time, predicting the later with the earlier is nearly impossible.

A common way to observe such behavior is by looking at a time series of an economy’s output, more specifically gross national product (GNP). This is just the value of the goods and services produced by a country’s businesses and workers.

Figure 1 shows the time series of real GNP for the United States from 1954-2005. While we see continuous growth of output, it is not a steady increase. There are times of faster growth and times of slower growth. Figure 2 transforms these levels into growth rates of real GNP and extracts a smoother growth trend. A common method to obtain this trend is the Hodrick-Prescott filter. The basic idea is to find a balance between the extent to which general growth trend follows the cyclical movement (since long term growth rate is not likely to be perfectly constant) and how smooth it is. The HP filter identifies the longer term fluctuations as part of the growth trend while classifying the more jumpy fluctuations as part of the cyclical component.

Observe the difference between this growth component and the jerkier data. Economists refer to these cyclical movements about the trend as business cycles. Figure 3 explicitly captures such deviations. Note the horizontal axis at 0. A point on this line indicates at that year, there is no deviation from the trend. All other points above and below the line imply deviations. By using log real GNP the distance between any point and the 0 line roughly equals the percentage deviation from the long run growth trend.

We call relatively large positive deviations (those above the 0 axis) peaks. We call relatively large negative deviations (those below the 0 axis) troughs. A series of positive deviations leading to peaks are booms and a series of negative deviations leading to troughs are recessions.

At a glance, the deviations just look like a string of waves bunched together -- nothing about it appears consistent. To explain causes of such fluctuations may appear rather difficult given these irregularities. However, if we consider other macroeconomic variables, we will observe patterns in these irregularities. For example, consider Figure 4 which depicts fluctuations in output and consumption spending, i.e. what people buy and use at any given period. Observe how the peaks and troughs align at almost the same places and how the upturns and downturns coincide.

We might predict that other similar data may exhibit similar qualities. For example, (a) labor, hours worked (b) productivity, how effective firms use such capital or labor, (c) investment, amount of capital saved to help future endeavors, and (d) capital stock, value of machines, buildings and other equipment that help firms produce their goods. While Figure 5 shows a similar story for investment, the relationship with capital in Figure 6 departs from the story. We need better way to pin down a better story; one way is to look at some statistics.

Stylized Facts

By eyeballing the data, we can infer several regularities, sometimes called stylized facts. One is persistence. For example, if we take any point in the series above the trend (the x-axis in figure 3), the probability the next period is still above the trend is very high. However, this persistence wears over time. That is, economic activity in the short run is quite predictable but due to the irregular long-term nature of fluctuations, forecasting in the long run is much more difficult if not impossible.

Another regularity is cyclical variability. Column A of Table 1 lists a measure of this with standard deviations. The magnitude of fluctuations in output and hours worked are nearly equal. Consumption and productivity are similarly much smoother than output while investment fluctuates much more than output. Capital stock is the least volatile of the indicators.

Yet another regularity is the co-movement between output and the other macroeconomic variables. Figures 4 - 6 illustrated such relationship. We can measure this in more detail using correlations as listed in column B of Table 1. Procyclical variables have positive correlations since it usually increases during booms and decreases during recessions. Vice versa, a countercyclical variable associates with negative correlations. Acyclical, correlations close to zero, implies no systematic relationship to the business cycle. We find that productivity is slightly procyclical. This implies workers and capital are more productive when the economy is experiencing a boom. They aren’t quite as productive when the economy is experiencing a slowdown. Similar explanations follow for consumption and investment, which are strongly procyclical. Labor is also procyclical while capital stock appears acyclical.

Observing these similarities yet seemingly non-deterministic fluctuations about trend, we come to the burning question of why any of this occurs. It’s common sense that people prefer economic booms over recessions. It follows that if all people in the economy make optimal decisions, these fluctuations are caused by something outside the decision-making process. So the key question really is: what main factor influences and subsequently changes the decisions of all actors in an economy?

Hunting (engineering)

Business cycle should point out that, from a mathematical point of view, business cycles are a type of self-exciting oscillation, as described in Hunting (engineering). Such oscillations are expected in any system that can be described by equations whose terms include time lags. Philcha (talk) 09:54, 2 June 2008 (UTC)

Business Cycle and Asset Prices

The external link to [www.businesscycleinvestor.com/literature.htm]points to a few dozen of very informative articles and books on the subject and should be included. I am suggesting to put it back. —Preceding unsigned comment added by 61.69.156.250 (talk • contribs)

To the contrary -- the site -- even its own name -- is advertising. This violates WP:EL and WP:SPAM. If you do not agree, please specify how specifically the link nevertheless complies with those guidelines. --Nlu (talk) 10:27, 24 October 2006 (UTC)

I found the link very useful. —Preceding unsigned comment added by 61.68.34.198 (talk) 09:25, 13 January 2008 (UTC)

Ravi Batra

Is this guy relevant? -- Vision Thing -- 08:09, 9 September 2008 (UTC)

I was planning to remove all the sub-sections under "Alternative interpretations of business cycles" and merge them under section header. Trim a bit where trimming is needed. I have to admit though that I'm not very familar with the topic, so forgive or revert me if things get too out of place. Some assistance was requested in cleaning up this article on the Economics Wikiproject, so I'm trying to do what I can. As for Ravi Batra, I'm not familar with his work. Morphh ^(talk) 12:51, 09 September 2008 (UTC)