Abstract
The article offers a new product based theory of economic cycles. The theory explains economic activity fluctuations from the point of life-cycle of marketable goods and services. Based on our assumptions, we have created a model of world GDP and described its dynamics for the period from 1960 till 2015. In this article, we consider long-term growth trend as granted and as an independent variable due to the complexity of factors, which influence economic growth, while defining economic cycles as a recurrent process, which is analyzed by the model. Considering that, we used Hodrick-Prescott filter as an approximated function to the trend component and Fast Fourier Transform (FFT) as the method of spectral analysis of the cyclical component after detrending. We have also discovered main features of economic cycles in developed and developing countries along with the dependency of economic cycles’ amplitudes on the level of financial sector development.
Highlights
The cyclicity of economic development is manifested in economic activity fluctuations around a long-term trend
All theories can be divided into two types: theories based on exogenous factors that cause economic fluctuations, and theories based on endogenous factors
In the global GDP dynamics, we have clearly observed 21.3, 16 and 12.8-year long cycles; we have suggested a hypothesis about the existence of a direct link between the level of development of the financial sector and the value of economic cycle amplitude
Summary
The cyclicity of economic development is manifested in economic activity fluctuations around a long-term trend. While economic booms are considered as a relatively positive phenomenon, crises usually lead to lower standards of living, a higher level of bankruptcies and other negative consequences. It explains the scientific interest in the phenomenon of economic cycles and in economic crises in particular. The major dispute about the periodicity of economic processes stems from the nature of economic fluctuations around the long-term trend. According to this criterion, all theories can be divided into two types: theories based on exogenous factors that cause economic fluctuations, and theories based on endogenous factors. A similar classification divides factors causing economic fluctuations into those that influence aggregate supply (changes in productivity ratio: technology, resources, business processes) and into those that influence aggregate demand (nature of consumption, interest rates etc.)
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