Cyclical Activity and Gestation Lags in Investment*

Abstract

This paper uses a macroeconomic model of investment behaviour to identify cyclical activity in UK investment. Various cycles are detected and their lengths are estimated. As a new contribution to the business cycle literature, we estimate the gestation lags inherent in investment projects (arising from capital adjustment, buildings construction etc.) that are considered central to the creation of fluctuations in economic activity. We find multiple and statistically significant cycles in our investment series, including a 3.1-year Kitchin cycle, a 9.6-year Juglar cycle and a 22.2-year Kuznets swing, driven by gestation lags of 1.1 years, 2.4 years and 12 years respectively.