Cyclic variation

Cyclic variation
See also

"Cyclic variation is any change in economic activity that is due to some regular and/or recurring cause, such as the business cycle or seasonal influences" (Friedman J. 2012, p.60).

Cyclical variation in statistic

It is said that the term cyclical variation refers to the recurrent variation in a time series which usually lasts for two or more years and is regular neither in amplitude nor in length.

These cyclical variations are also known as oscillating movements that take place due to ups and downs recurring after a period of greater than one year. These variations, though more or less regular are not necessarily, uniformly periodic. This means that they may not follow exactly similar pattern after equal intervals of time say 7 to 9 years. They may not always complete two years with a fixed duration of time.

  • In the field of business and economy, they follow a well-determined pattern with four different phases, like the prosperity phase, businesses prosper, prices go up, and profits are multiplied. This causes overdevelopment, difficulties in transportation, an increase in wage rate, deficiency in labor, high rate of interest, the dearth of money in the market and price concession etc. leading to depression (slump). In the depression phase, as we know, there is pessimism in trade and industries, factories close down, businesses fail, unemployment spreads, the rate of wages and prices are low. This causes idleness of money, availability of money at low interest, increase in demand for goods of money at low interest, increase in demand for goods and services characterized by the situation of recovery which ultimately leads to prosperity, or boom.
  • "Cyclical movements or variations refer to the long-term oscillations or swings about a trend line These cycles may or may not be periodic, i.e., they may or may follow exactly similar patterns after equal intervals of time. Such variations are of longer duration than a year and they do not show the type of regularity as observed in the case of seasonal variations. An important example of cyclical variations in the so-called business cycles representing intervals of prosperity, recession, depression, and recovery. Each phase changes gradually into the phase which follows it in the given order. In the business activity, these phases follow each other with steady regularity and the period from the peak of one boom to the peak of the next boom is called a complete cycle. The usual periods of a business cycle may be ranging between 5-11 years. Most of the economic and business series relating to income, investment, wages, production shows this tendency. The study of cyclical fluctuations is therefore very important for predicting the turning phases in a business activity which may greatly help in proper policy formation in the area" (Sharma K. 2006, p.397)
  • Cyclic variations may not necessarily be periodic fluctuations activity over a period of years. No satisfactory method of measuring directly the cyclical swings in a time series has been developed. The irregular nature of fluctuations makes it impossible any attempt to find an average cycle that could be used to represent the effect of the cycle on the series. The best measuring the cyclical fluctuations in time series has been the indirect method of removing the variation in the series that results from seasonal forces of a secular trend. The remaining fluctuations are considered to be cyclical and erratic movements (Pillai R. 2008, p.624).

References

Author: Monika Broszkiewicz