Business cycles are the result of production fluctuation, that is GDP which is related to level of unemployment and inflation. In other words, this are fluctuations in economic activity characterized by periods of rising and falling fiscal health.
Business cycles are caused by various types of factors like: wars, oil price fluctuation, new inventions etc. What is more economic policy also matters. Economic fluctuation is inevitable and it cannot be stopped. It can only be reduced or in some cases increased, which is not craved.
- Kitchin cycles: 40 months
- Juglar cycles: 9 to 11 years
- Kondratiev cycles: 45 to 60 years
- Kuznets cycles: 15 to 18 years
One of the first researcher that was interested in business cycles was French economist Clement Juglar (1819-1905). After the World War cycles were examined by Russian economist Nikolai Kondratiev (1892-1930?) and Americans: Simon Kuznets (1901-1985), Joseph Kitchin, Wesley Clair Mitchell (1874-1948) and Joseph Schumpeter (1883-1950).
Theories on the causes of business cycles consider various possible factors; however, none has conclusively delineated the underlying causes for fluctuations.
Phases of cycle development
- boom, expansion (increase in production and prices, low interests rates)
- recession, crisis (stock exchanges crash and multiple bankruptcies of firms occur)
- depression (drops in prices and in output, high interests rates)
- recovery (stocks recover because of the fall in prices and incomes)
- Cooley, T. F. (1995). Frontiers of business cycle research.
- Prescott, E. C. (1986, September). Theory ahead of business-cycle measurement. In Carnegie-Rochester Conference Series on Public Policy (Vol. 25, pp. 11-44). North-Holland.
- Schumpeter, J. A. (1934). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle (Vol. 55). Transaction publishers.
Author: Rafał Szkaradek