Boom-bust Dynamics Research Articles

Success story or tall tale? Discursive cooperation and economic restructuring in Iceland

Political economists have long recognized the power of ideas to influence economic adjustment by shaping public policy and fostering inter-firm coordination. This article extends this argument, demonstrating how ideas can have a direct and unmediated impact on economic restructuring. More specifically, it identifies discursive cooperation, or collective storytelling, as a distinct logic of collective action, separate from policy concertation and inter-firm coordination. Examining twenty first century Iceland, this article illustrates how shared narratives accelerated the country’s movement into financial services and tourism by facilitating the diffusion of new business models and attracting external resources. Absent inter-firm coordination, policy concertation, or supportive public policies, however, stakeholders struggled to invest in public goods. Instead of incremental upmarket movement, Iceland was characterized by volatile boom-bust dynamics. In illustrating the transformative power of storytelling in small open economies, this article simultaneously highlights the perils of relying on discursive cooperation alone.

Crop booms as regime shifts.

A crop boom is a sudden, nonlinear and intense expansion of a new crop. Despite their large impacts, boom-bust dynamics are not well understood; booms are largely unpredictable and difficult to steer once they unfold. Based on the striking resemblances between land regime shifts and crop booms, we apply complex systems theory, highlighting the potential for regime shifts, to provide new insights about crop boom dynamics. We analyse qualitative and quantitative data of rubber and banana plantation expansion in two forest frontier regions of northern Laos. We show that preconditions, including previous booms, explain the occurrence (why) of booms, and triggers like policy and market changes explain their timing (when). Yet, the most important features of booms, their intensity and nonlinearity (how), strongly depended on internal self-reinforcing feedbacks. We identify built-in feedbacks (neighbourhood effects and imitation) and emergent feedbacks (land rush) and show that they were social in nature, multi-scale from plot to region and subject to thresholds. We suggest that these are regular features of booms and propose a definition and causal-mechanistic explanation of crop booms, examining the overlap between booms and regime shifts and the role of frontiers. We then identify opportunities for management interventions before, during and after booms.

The expected sample allele frequencies from populations of changing size via orthogonal polynomials

In this article, discrete and stochastic changes in (effective) population size are incorporated into the spectral representation of a biallelic diffusion process for drift and small mutation rates. A forward algorithm inspired by Hidden-Markov-Model (HMM) literature is used to compute exact sample allele frequency spectra for three demographic scenarios: single changes in (effective) population size, boom-bust dynamics, and stochastic fluctuations in (effective) population size. An approach for fully agnostic demographic inference from these sample allele spectra is explored, and sufficient statistics for stepwise changes in population size are found. Further, convergence behaviours of the polymorphic sample spectra for population size changes on different time scales are examined and discussed within the context of inference of the effective population size. Joint visual assessment of the sample spectra and the temporal coefficients of the spectral decomposition of the forward diffusion process is found to be important in determining departure from equilibrium. Stochastic changes in (effective) population size are shown to shape sample spectra particularly strongly.

Expectation-driven boom-bust cycles

Using data from the Survey of Professional Forecasters, we observe that a large fraction of analysts’ expectations about future economic growth is not due to technology or other shocks to fundamentals measured by the business cycle literature. We find that these unexplained changes in forecast revisions predict significant boom-bust dynamics in the key macroeconomic aggregates. We offer a novel theory where boom-bust dynamics stem from expectation shocks orthogonal to fundamentals.

Regular and chaotic dynamics in a 2D discontinuous financial market model with heterogeneous traders

We develop a financial market model where three types of traders operate simultaneously: fundamentalists and chartists of two types, namely, trend followers and contrarians. The dynamics of this model is described by a two-dimensional discontinuous map defined by two linear functions, where one acts in the partition between two (parallel) discontinuity lines and the other one acts outside this partition. Our analysis shows that despite the linearity of the map components, its dynamics can be quite complex, with various, possibly coexisting attracting cycles and chaotic attractors. As a first step towards the understanding how the overall bifurcation structure observed in the parameter space of the map is organized, we obtain analytically the boundaries of periodicity regions related to the simplest attracting period-n cycles, n≥3, with one point in the middle partition and n−1 points outside it. These boundaries can be related to border-collision bifurcations (when a point of the cycle collides with a discontinuity line) as well as to degenerate bifurcations (associated with eigenvalues on the unit circle). We show also some elements of period-adding and period-incrementing bifurcation structures for which the cycles mentioned above are basic. From an economic point of view, our study confirms that a fairly simple financial market model with heterogeneous agents is able to produce complicated boom-bust dynamics typical of real financial markets.

Anchovy boom and bust linked to trophic shifts in larval diet

Although massive biomass fluctuations of coastal-pelagic fishes are an iconic example of the impacts of climate variability on marine ecosystems, the mechanisms governing these dynamics are often elusive. We construct a 45-year record of nitrogen stable isotopes measured in larvae of Northern Anchovy (Engraulis mordax) in the California Current Ecosystem to assess patterns in food chain length. Larval trophic efficiency associated with a shortened food chain increased larval survival and produced boom periods of high adult biomass. In contrast, when larval food chain length increased, and energy transfer efficiency decreased, the population crashed. We propose the Trophic Efficiency in Early Life (TEEL) hypothesis, which states that larval fishes must consume prey that confer sufficient energy for survival, to help explain natural boom-bust dynamics of coastal pelagic fishes. Our findings illustrate a potential for trophic indicators to generally inform larval survival and adult population dynamics of coastal-pelagic fishes.

Technology Shocks and Predictable Minsky Cycles

Abstract Big technological improvements in a new, secondary sector lead to a period of excitement about the future prospects of the overall economy, generating boom-bust dynamics propagating through credit markets. Increased future capital prices relax collateral constraints today, leading to a boom before the realisation of the shock. But reallocation of capital toward the secondary sector when the shock hits leads to a bust going forward. These cycles are perfectly foreseen in our model, making them markedly different from the typical narrative about unexpected financial shocks used to explain crises. Our dynamics obtain without a departure from rational expectations. In fact, these cycles echo Minsky’s original narrative for financial cycles, according to which ‘financial trauma occur [sic] as normal functioning events in a capitalistic economy’ (Minsky, 1980, p. 21).

The levelling-off and recent rapid decline in population density of the highly prolific invasive lionfish on the Saba Bank, Eastern Caribbean

Since its introduction in the Western Atlantic more than 30 years ago, the lionfish (Pterois volitans/miles complex) has spread throughout the Gulf of Mexico, the Caribbean and the Western Tropical Atlantic, with massive and unprecedented ecological impacts. This invasion is among the most studied marine fish invasions but very little is still really known about the population dynamics of the species and the factors ultimately governing its abundance. The species was first documented on the Saba Bank in 2010 and rapidly increased in abundance till the end of 2014. In this note we document its rise and subsequent decline in density and thereby describe the species’ third apparent local population boom-bust event for the Greater Caribbean. We also document gradual increases in the mean size of lionfish of the Eastern Caribbean Saba Bank that coincided with the increase and subsequent decline in abundance. Contrary to the previously documented epizootic disease outbreak associated with the population crash observed in the Gulf of Mexico we were unable to find any signs of the occurrence of epizootic disease. We suggest that the population decline on the Saba Bank might have been due to non-local causes. Boom-bust dynamics are often witnessed in biological invasions and have critical implications for both understanding and managing invasive species. While the underlying cause for the boom-bust event we document remains unknown, our work suggests that in the region, ecological feedback mechanisms are gradually developing that can help level-off deleterious population excesses of this invasive species.

Explaining population booms and busts in Mid-Holocene Europe

Archaeological evidence suggests that the population dynamics of Mid-Holocene (Late Mesolithic to Initial Bronze Age, ca. 7000–3000 BCE) Europe are characterized by recurrent booms and busts of regional settlement and occupation density. These boom-bust patterns are documented in the temporal distribution of 14C dates and in archaeological settlement data from regional studies. We test two competing hypotheses attempting to explain these dynamics: climate forcing and social dynamics leading to inter-group conflict. Using the framework of spatially-explicit agent-based models, we translated these hypotheses into a suite of explicit computational models, derived quantitative predictions for population fluctuations, and compared these predictions to data. We demonstrate that climate variation during the European Mid-Holocene is unable to explain the quantitative features (average periodicities and amplitudes) of observed boom-bust dynamics. In contrast, scenarios with social dynamics encompassing density-dependent conflict produce population patterns with time scales and amplitudes similar to those observed in the data. These results suggest that social processes, including violent conflict, played a crucial role in the shaping of population dynamics of European Mid-Holocene societies.

The Macroeconomic Effects of Shadow Banking Panics

Abstract We study the interaction between occasionally binding financial constraints in the traditional (retail) banking sector and banking panics in the shadow banking sector. Shadow banking panics occur when retail banks choose not to roll over their lending to shadow banks. Occasionally binding financial constraints of retail banks increase the likelihood of and amplify boom-bust dynamics around such shadow banking panics. The model can quantitatively match the dynamics of macroeconomic and financial variables around the US financial crisis. We quantify the impact of wholesale funding market interventions akin to those implemented by the Federal Reserve in 2008, finding that they reduced the fall in output by about half a percentage point. The timing of this intervention matters: an intervention before the banking panic would have been more effective and might even have avoided the panic.

Sigmoidal curves reflect impacts and dynamics of aquatic invasive species

Identifying general patterns and trends underlying the impacts and dynamics of biological invasions has proven elusive for scientists. Recently, the impact curve was proposed as a means to predict temporal impacts of invasive alien species, characterised by a sigmoidal growth pattern with an initial exponential increase, followed by a subsequent rate of decline and approaching a saturation level in the long-term where impact is maximised. While the impact curve has been empirically demonstrated with monitoring data of a single invasive alien species (the New Zealand mud snail, Potamopyrgus antipodarum), broadscale applicability remains to be tested for other taxa. Here, we examined whether the impact curve can adequately describe the invasion dynamics of 13 other aquatic species (within Amphipoda, Bivalvia, Gastropoda, Hirudinea, Isopoda, Mysida, and Platyhelminthes) at the European level, employing multi-decadal time series of macroinvertebrate cumulative abundances from regular benthic monitoring efforts. For all except one tested species (the killer shrimp, Dikerogammarus villosus), the sigmoidal impact curve was strongly supported (R2 > 0.95) on a sufficiently long time-scale. For D. villosus, the impact had not yet reached saturation, likely reflecting the ongoing European invasion. The impact curve facilitated estimation of introduction years and lag phases, as well as parameterisation of growth rates and carrying capacities, providing strong support for the boom-bust dynamics typically observed in several invader populations. These findings suggest that impact can grow rapidly before saturating at a high level, with timely monitoring often lacking for the detection of invasive alien species post-introduction. We further confirm the applicability of the impact curve to determine trends in invasion stages, population dynamics, and impacts of pertinent invaders, ultimately helping inform the timing of management interventions. We hence call for improved monitoring and reporting of invasive alien species over broad spatio-temporal scales to permit further testing of large-scale impact consistencies across various habitat types.

Credit market developments and sectoral business cycles worldwide

Abstract This paper investigates the relationship between credits and sector-level output dynamics in a sample of 41 advanced and developing countries. The existing literature shows that household credits are associated with boom-bust cycles in aggregate output, whereas business loans do not cause such output dynamics. The present paper expands these findings in terms of advanced versus developing countries and manufacturing versus services sectors. The new findings indicate that the resulting boom-bust cycles in the aggregate output in response to household credits are generally observed in the sample of developing countries, with no similar dynamics in the advanced countries. Another significant conclusion is that the boom-bust cycles are generated mostly in the services sector. No equivalent boom-bust dynamics are observed in the manufacturing sector, but the negative medium-run effects of household credits are larger in this sector. These findings indicate that credit mechanisms and consequences can significantly vary across countries and sectors.

Overreaction and Diagnostic Expectations in Macroeconomics

We present the case for the centrality of overreaction in expectations for addressing important challenges in finance and macroeconomics. First, non-rational expectations by market participants can be measured and modeled in ways that address some of the key challenges posed by the rational expectations revolution, most importantly the idea that economic agents are forward-looking. Second, belief overreaction can account for many long-standing empirical puzzles in macro and finance, which emphasize the extreme volatility and boom-bust dynamics of key time series, such as stock prices, credit, and investment. Third, overreaction relies on psychology and is disciplined by survey data on expectations. This suggests that relaxing the assumption of rational expectations is a promising strategy, helps theory and evidence go together, and promises a unified view of a great deal of data.

Invasion impacts and dynamics of a European-wide introduced species.

Globalization has led to the introduction of thousands of alien species worldwide. With growing impacts by invasive species, understanding the invasion process remains critical for predicting adverse effects and informing efficient management. Theoretically, invasion dynamics have been assumed to follow an "invasion curve" (S-shaped curve of available area invaded over time), but this dynamic has lacked empirical testing using large-scale data and neglects to consider invader abundances. We propose an "impact curve" describing the impacts generated by invasive species over time based on cumulative abundances. To test this curve's large-scale applicability, we used the data-rich New Zealand mud snail Potamopyrgus antipodarum, one of the most damaging freshwater invaders that has invaded almost all of Europe. Using long-term (1979-2020) abundance and environmental data collected across 306 European sites, we observed that P. antipodarum abundance generally increased through time, with slower population growth at higher latitudes and with lower runoff depth. Fifty-nine percent of these populations followed the impact curve, characterized by first occurrence, exponential growth, then long-term saturation. This behaviour is consistent with boom-bust dynamics, as saturation occurs due to a rapid decline in abundance over time. Across sites, we estimated that impact peaked approximately two decades after first detection, but the rate of progression along the invasion process was influenced by local abiotic conditions. The S-shaped impact curve may be common among many invasive species that undergo complex invasion dynamics. This provides a potentially unifying approach to advance understanding of large-scale invasion dynamics and could inform timely management actions to mitigate impacts on ecosystems and economies.

Argentina: Staff Report for 2022 Article IV Consultation and request for an Extended Arrangement under the Extended Fund-Facility-Press Release; Staff Report; and Staff Supplements

Against the background of a decade of declining per-capita income and high inflation, the Article IV consultation focused on policies to begin to tackle Argentina’s underlying impediments to sustained growth and low and stable inflation. Avoiding boom-bust dynamics suggests the need for greater emphasis on policies to promote net exports and mobilize domestic saving to finance much-needed investment. Reversing the high degree of financial dollarization, however, will take time and will require a durable commitment to tackle fiscal dominance and strengthen debt sustainability. Meanwhile, addressing budget rigidities is essential to improve Argentina’s resilience to shocks, while reorienting public spending towards investment and innovation is critical to support productivity and reduce intergenerational inequities. Sustained political and social consensus is necessary for policy predictability and to balance demands from financing Argentina’s large social welfare system while also encouraging private investment and formal employment.

Boom-bust population dynamics increase diversity in evolving competitive communities

The processes and mechanisms underlying the origin and maintenance of biological diversity have long been of central importance in ecology and evolution. The competitive exclusion principle states that the number of coexisting species is limited by the number of resources, or by the species’ similarity in resource use. Natural systems such as the extreme diversity of unicellular life in the oceans provide counter examples. It is known that mathematical models incorporating population fluctuations can lead to violations of the exclusion principle. Here we use simple eco-evolutionary models to show that a certain type of population dynamics, boom-bust dynamics, can allow for the evolution of much larger amounts of diversity than would be expected with stable equilibrium dynamics. Boom-bust dynamics are characterized by long periods of almost exponential growth (boom) and a subsequent population crash due to competition (bust). When such ecological dynamics are incorporated into an evolutionary model that allows for adaptive diversification in continuous phenotype spaces, desynchronization of the boom-bust cycles of coexisting species can lead to the maintenance of high levels of diversity.

Modeling herbivore functional responses causing boom-bust dynamics following predator removal.

Native biodiversity is threatened by invasive species in many terrestrial and marine systems, and conservation managers have demonstrated successes by responding with eradication or control programs. Although invasive species are often the direct cause of threat to native species, ecosystems can react in unexpected ways to their removal or reduction. Here, we use theoretical models to predict boom‐bust dynamics, where the removal of predatory or competitive pressure from a native herbivore results in oscillatory population dynamics (boom‐bust), which can endanger the native species’ population in the short term. We simulate control activities, applied to multiple theoretical three‐species Lotka‐Volterra ecosystem models consisting of vegetation, a native herbivore, and an invasive predator. Based on these communities, we then develop a predictive tool that—based on relative parameter values—predicts whether control efforts directed at the invasive predator will lead to herbivore release followed by a crash. Further, by investigating the different functional responses, we show that model structure, as well as model parameters, are important determinants of conservation outcomes. Finally, control strategies that can mitigate these negative consequences are identified. Managers working in similar data‐poor ecosystems can use the predictive tool to assess the probability that their system will exhibit boom‐bust dynamics, without knowing exact community parameter values.

Heterogeneous expectations, housing bubbles and tax policy

Abstract We integrate a plausible expectation formation and learning scheme of boundedly rational investors into a standard user cost housing market model, involving a rental and a housing capital market. In particular, investors switch between heterogeneous expectation rules according to an evolutionary fitness measure, given by the rules’ past profitability. We analytically show that our housing market model may produce endogenous boom-bust dynamics. Furthermore, we demonstrate that policy makers may use our model as a tool to explore how different tax policies may affect the housing market’s steady state, its stability and out-of-equilibrium behavior.

Real Credit Cycles

We incorporate diagnostic expectations, a psychologically founded model of overreaction to news, into a workhorse business cycle model with heterogeneous firms and risky debt. A realistic degree of diagnosticity, estimated from the forecast errors of managers of US listed firms, creates financial fragility during good times. This mechanism produces countercyclical credit spreads and yields two key features of observed credit cycles. First, it generates boom-bust dynamics at the firm and aggregate levels: cheap credit predicts future increases in spreads, low bond returns, and investment drops. Second, it produces the spike in spreads observed in 2008-9 from modest negative TFP shocks. Diagnostic expectations offer a parsimonious mechanism generating realistic financial reversals in conventional business cycle models. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Mechanisms of possible self-limitation in the invasive Asian shore crab Hemigrapsus sanguineus

Population sizes of invasive species are commonly characterized by boom-bust dynamics, and self-limitation via resource depletion is posited as one factor leading to these boom-bust changes in population size. Yet, while this phenomenon is well-documented in plants, few studies have demonstrated that self-limitation is possible for invasive animal species, especially those that are mobile. Here we examined the invasive Asian shore crab Hemigrapsus sanguineus, a species that reached very high abundances throughout invaded regions of North America, but has recently declined in many of these same regions. We examined the relationship between diet, energy storage, reproduction, and growth in crabs collected from the New Hampshire coast. We show that energy storage and reproduction both increase with diet quality, while growth declines with diet quality. These results suggest that self-limitation may be a contributing factor to the recent declines of H. sanguineus at sites where this invader was once much more abundant. Further, these results suggest a diet-associated tradeoff in energy allocation to different vital rates, with a focus on reproduction when high quality resources are consumed, and a focus instead on growth when poor quality resources are consumed.