Business, Monetary and Credit Cycles in Theory

Abstract

This chapter provides a short review of theories of the economic cycle and how they developed. It focuses on some of the key concepts and ideas from the vast literature on the subject. It discusses the difference between classical business cycles—that are viewed primarily as expansions and contractions in the level of activity—and growth cycles that require the data to be de-trended for analysis. The emphasis is on theories of the business cycle but many of these theories highlight the importance of monetary and financial factors as both impulses and propagators of the cycle. A summary of the key impulses and propagation mechanisms suggested by different theories is provided.