Business Cycle Research Research Articles

An integrated approach for decomposing time series data into trend, cycle and seasonal components

ABSTRACT This study presents a methodology for decomposing time series data into trend, seasonal, and cyclical components using the moving linear model approach by Kyo and Kitagawa (Journal of Business Cycle Research, 19(3): 373-397, 2023). Our approach integrates seasonal adjustment and decomposition into a single framework. We evaluated our approach with two case studies: examining daily COVID-19 case data and the Index of Industrial Production (IIP) in Japan, comparing the results to seasonally adjusted IIP data. Performance metrics included the discrimination power index and the variance of the adjusted cyclical component. Our findings show that our method effectively extracts business cycle information, achieving higher discrimination power and greater adjusted variance compared to seasonally adjusted IIP data, highlighting the superior performance of our integrated seasonal adjustment method. We compared the proposed approach with a state-space modelling method by introducing an overall stability as a new indicator. The results demonstrated the stability of the estimations obtained with our proposed method.

Variable Capital Utilization and Indeterminacy

Variable capital utilization has been widely used in business cycle research based on the observation that utilization rate is variable over time. The common assumption is that capital depreciates faster when it is utilized more extensively. This paper shows analytically that variable capital utilization makes it easier for indeterminacy to arise. In particular, when both capital utilization and labor supply become infinitely elastic, the required degree of external increasing returns can be arbitrarily small.

Staatswissenschaften and the Mathematical Policy Science of Jan Tinbergen

The rise of mathematical economics is typically understood as a fundamental shift in the language and technique of economic theorizing. This article argues that an examination of Tinbergen's work demonstrates that a similar “mathematical” turn occurred in economic policy. This article contextualizes Tinbergen's professional career at the Dutch Central Bureau of Statistics and his early policy-oriented contributions as exemplified by the applied policy reports that he wrote between 1931 and 1936. His econometric work, including his seminal 1936 model of the Dutch economy and the closely related League of Nations model of the US economy, was rooted in his vision that business cycle research functioned in the service of the state. His work was aimed not at uncovering fundamental or structural relationships in the economy but at practical interventions in the economy by a state that developed control over new instruments of macroeconomic management. As such it can be and has been analyzed as an important contribution to economics as an engineering science. But this article demonstrates that Tinbergen also explicitly depicted the economy from the perspective of the policymaker and that he was attentive to the changing institutional order of the national and international economy. Tinbergen's work in this respect owed a great deal to the more political-economic tradition of German Staatswissenschaften than is typically acknowledged.

Das Deutsche Institut für Wirtschaftsforschung im Zweiten Weltkrieg

Abstract The German Institute for Economic Research (DIW Berlin), the largest institute of its kind in Germany, will celebrate its centenary in 2025. It was founded as the Institute for Business Cycle Research (IfK) on July 16 1925 by Ernst Wagemann, then President of the German Statistical Office. The Institute’s research on the war economy 1939 to 1945 has not yet been examined in a well-founded manner. As the DIW itself does not possess the necessary archival records, the secret studies had first to be made accessible from various archives of the authorities which had requested this research. Only then could the studies and reports which the IfK/DIW had done on the war economy be presented here. With Wagemann losing his dual function as head of the Institute and as President of the German Statistical Office in 1933, the IfK/DIW had no longer a smooth direct access to internal statistics of the Statistical Office. In order to be able to work in an expert capacity, the Institute and its President had to secure their clients’ trust through convincing professional competence. The article elaborates on the Institute’s struggle for the status of vital importance for the war, which awarded a special position compared with other institutes, e.g. in the Reich’s Research Council (Reichsforschungsrat). Wagemann’s skill in presenting his Institute as an indispensable economic research institute certainly contributed to its prominent status. He also asserted and made himself indispensable to the National Socialist system.

Worldwide fluctuations in carbon emissions: Characterization and synchronization

Coordinated and cooperative efforts among international actors are necessary for climate policy effectiveness. From a macroeconomic perspective, the greater the synchronization of business cycles, the greater the potential for policy coordination and joint decision making. In light of the procyclical behaviour between the business cycle and the carbon emission cycle, this work tries to shed light on carbon emission fluctuations of sixteen major developed and developing economies during 1946–2021. In analogy with “classical” business cycle research, the analysis dates expansionary and contractionary phases, determines their durations and amplitudes. It also inspects emission synchronization between pairs and groups of countries in order to assess their degree of carbon integration. Carbon emission fluctuations are mostly an expansionary phenomenon. Compared to developed countries, developing countries feature on average longer cycles (i.e., a lower number of full cycles), less time spent in contraction, longer expansionary phases, shorter contractionary phases and larger absolute amplitudes. Pairwise carbon emission fluctuations are synchronized in 34.2% cases. Developed economies have their own common emission cycle. As for developing economies, results are heterogeneous. Only part of them, in fact, shows evidence of a common carbon emission cycle despite a relatively recent history of cooperation, heterogeneous geographical locations and socio-cultural features.

Staging Economics

The cultural analysis of economics that draws from European Ethnology is still clearly underemphasized. This article highlights its potential and explores possible approaches. It begins with a search for traces of the previous disciplinary preoccupation with economy and economics (economic theorizing). Then, using examples from the author’s own research (studies on business cycle research and on the phenomenon of economy museums), ways of approaching and their potential for knowledge production are concretised. Based on this, further-reaching perspectives are presented. Basically, it is not enough to limit the European-ethnological study of economy and academic economic activities to everyday actors and practices. It is also indispensable to look at economic expertise, its efficacy in economic processes and the „fabrication“ of this expertise – in the academic sphere and beyond.

Business cycle effects on consumer behavior: A conceptual framework and research agenda

AbstractA brand's long‐term success depends on its ability to adapt to changes in the business cycle, during which consumer responses might vary widely. Decades of research on business cycle effects on consumer behavior have led to a diverse, yet scattered body of knowledge. To lay a foundation for moving the field forward, we conduct a semisystematic literature review and differentiate the literature based on (1) behavioral foci studied and (2) underlying theoretical assumptions made. Our review of 55 articles identifies six literature fields that study business cycle effects on consumer behavior, and a multitude of theoretical approaches, which we categorize as mechanical core, affective layer, motivational ground, sociorelational, and cultural background. Next, we integrate commensurable elements of these distinct research traditions in an interdisciplinary, higher‐order conceptual framework of business cycle effects on consumer behavior, underpinned by four fundamental premises that direct marketing practice. Finally, we use these fundamental premises to delineate guidelines that advance the development of business cycle research in marketing, including (but not limited to) focus on consumer well‐being, consumer engagement and digital marketing. The conceptual framework guides the generalizable application of psychological theories to marketing practice during different stages of the business cycle.

Measuring carbon emission sensitivity to economic shocks: a panel structural vector autoregression 1870-2016.

The study of the link between production, measured in gross domestic product and CO2 emissions, is a topic under intense research. Carbon emissions are moving together with economic shocks (high synchronicity), particularly at troughs and peaks of a business cycle. This research investigates the influence of economic shocks to carbon emissions. Previous studies do not provide a direct empirical evidence on the impact of economic shocks to carbon emissions that are available. We employ structural vector autoregression to explore the impact of economic shocks on carbon emissions in 20 advanced economies from 1870 to 2016. Our empirical results prove a strong, statistically significant connection between emissions and output with a coefficient of elasticity > 1. We identify a strong empirical link using panel structural vector autoregression between carbon emissions and real GDP growth per capita. Up to 40% of the fluctuations in CO2 emissions is explained by combined economic factors (output, population, oil prices, stock exchange). The findings further indicate that carbon emission is determined by energy policy (energy intensity, carbon intensity, relative costs of renewable energy). Our findings contribute to energy policy management, energy, and business cycle research to inspire novel research on energy cycles.

Did F.A. Hayek Embrace Popperian Falsificationism ? A Critical Comment About Certain Theses of Popper, Duhem and Austrian Methodology

The author of this article argues that Hayek´s methodological outlook at the time he engaged in business cycle research was actually closer to praxeological apriorism than to Popperian falsificationism. A consideration of the Duhem thesis highlights the fact that even from a mainstream methodological perspective falsificationism is more problematic than is often realized. Even if the praxeological and mainstream lines of argumentation reject the Popperian emphasis on falsification for different reasons and from a different background, the prospects for falsificationism in economic methodology seem rather bleak.
 Key words: General methodology; Austrian methodology; falsificationism; Popper; Hayek; Duhem; Duhemian Argument; testing of Theories; meaning and Interpretation of econometric results; correlation and causality.
 JEL Classification: B20, C10, B23, A12, E32, B53, B40
 Resumen: La perspectiva metodológica de Hayek a la hora de investigar el ciclo comercial se acercaba más al apriorismo praxeológico que al falsacionismo popperiano. Una consideración de la tesis de Duhem destaca el hecho de que, incluso desde una perspectiva metodológica común, el falsacionismo es más problemático de lo que se suele pensar. A pesar de que las líneas de argumentación praxeológicas rechazan el énfasis popperiano en la falsación por distintos motivos y desde un fondo distinto, las perspectivas del falsacionismo en la metodología económica no parecen ser nada prometedoras.
 Palabras clave: metodología general; metodología austriaca; falsacionismo; Popper; Hayek; Duhem; argumento duhemiano; prueba de teorías; significado e interpretación de resultados econométricos; correlación y causalidad.

Economies of scale and international business cycles

This paper incorporates sloping marginal cost curves and their variations across industries into an open macro model, motivated by the fact that industries’ output, imports, and exports are more procyclical when their economies of scale arise from sloping marginal cost curves rather than fixed costs. The model, consistent with the data, delivers endogenous within-firm interdependence across markets and export gains/losses, which reproduce observed industrial business cycle patterns as well as more correlated aggregate business cycles across countries. The findings highlight the importance of marginal cost structures in international business cycle research.

Dynamics of volatility and comovement in Indian industrial sector: Evidence from the DCC‐MGARCH model

One strand of business cycle research focuses on the analysis of the comovement of business cycle variables at the aggregate and sectoral levels. Following this line of research, this article examines the volatility and inter‐industry comovement of output in the context of India for the post‐liberalisation period, that is, April 1992–December 2019. The study employs the dynamic conditional correlation‐multivariate generalised autoregressive conditional heteroscedasticity framework and thereby estimates the conditional variance and the time‐varying correlations. The results indicate that the volatilities of the capital goods sector and consumer durables sector relative to that of the aggregate industrial sector are higher, suggesting a higher amplitude of growth rates in these sectors. The conditional correlation estimates reveal that the use‐based sectors are positively correlated with the aggregate industry, and the capital goods sector has the highest correlation with the aggregate sector. Given that the capital goods sector is crucial for the development of the economy, it is essential to bring more stability and sustain growth in this sector. The results further point towards positive but relatively weak correlations between the pair of sectors. The finding of positive correlation underscores the comovement of different groups of industries. The relatively weak correlations between the pairs of use‐based sectors might be because of a lower degree of transmission of shocks from one use‐based sector to another.

Uncertainty shocks and business cycle research

We review the literature on uncertainty shocks and business cycle research. First, we motivate the study of uncertainty shocks by documenting the presence of time-variation in the volatility of macroeconomic time series. Second, we enumerate the mechanisms that researchers have postulated to link uncertainty shocks and business cycles. Third, we outline how we can specify uncertainty shocks. Fourth, we postulate a real business cycle model augmented with financial frictions and uncertainty shocks. Fifth, we use the model to illustrate our previous discussions and to show how uncertainty shocks can be expansionary, a useful finding in several contexts.

Walter Eucken’s Concept of Economic Order and Business Cycle Analysis

AbstractWalter Eucken formulated his concept of economic order as a solution to the tension between theoretical approaches and empirical observation that had constituted the conflict between the Austrian School of Economics and the German Historical School. Previous literature has established the linkage between the German-language business cycle debate of the late 1920 s and Eucken’s concept of economic order. This paper discusses how his concept of economic order can help to understand the severity of economic crises and thus concentrates on the elements constituting the economic order, i. e. its ideal types, with whose help Eucken aimed to derive hypothetical propositions. Based on the writings of his students Leonhard Miksch and Friedrich A. Lutz who underscored the role of equilibrium in business cycle research, this paper suggests that abstract theory of economic crises should employ ideal types as models and thus study how exogenous shocks affect the endogenous economic variables. The subject of inquiry should be oriented to the process of equilibrium reestablishment. Crucial for this paper is that the equilibrium reestablishment depends on institutional factors. This method to explain economic crises represents the link which connects the business cycle debate of the 1920 s and 1930 s to the subsequent emergence of the ordoliberal theory of institutions and orders.

Remembering Oskar Morganstern

Oskar Morganstern (1902-1977) is best known as the co-developer of modern game theory with John von Neumann in their 1944 book, _The Theory of Games and Economic Behavior._ Morgenstern had been educated at the University of Vienna, studying with one of the early leaders of the Austrian School of Economics, Friedrich von Wieser. But his main “Austrian” mentor was Hans Mayer, who replaced Wieser at the time of the latter’s retirement in 1923. Later, Morganstern was assistant to a young Friedrich Hayek at the Austrian Institute for Business Cycle Research, and took over as director when Hayek took a position at the London School of Economics. Though he had an unflattering, dark side, he was a fascinating economist having early connections with some of the brightest lights in the Austrian School.

Uncertainty Shocks and Business Cycle Research

We review the literature on uncertainty shocks and business cycle research. First, we motivate the study of uncertainty shocks by documenting the presence of time-variation in the volatility of macroeconomic time series. Second, we enumerate the mechanisms that researchers have postulated to link uncertainty shocks and business cycles. Third, we outline how we can specify uncertainty shocks. Fourth, we postulate a real business cycle model augmented with financial frictions and uncertainty shocks. Fifth, we use the model to illustrate our previous discussions and to show how uncertainty shocks can be expansionary. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

What do deviation cycles measure? An analysis of the informational content of filter-based business cycles

Background: Empirical business cycle research typically commences with the extraction of a so-called deviation cycle using a time-series smoothing filter. This methodology is appealing for its pragmatism; it is easy to implement, and the output it produces is conveniently interpreted as percentage deviations from the natural level of output. However, recent literature offers staunch criticism of deviation cycle analysis, especially with regards to the assumption implicitly underlying it – that business cycle fluctuations are restricted to distinct intervals on the frequency domain.Aim: Despite its lack of a basis in theory, the analysis of deviation cycles over particular frequency ranges may still yield useful stylised business cycle facts. This, however, hinges on whether the information that a frequency filter captures consistently aligns with relevant theory-based business cycle concepts. Whether this is the case is an empirical matter, and herein lies the rationale for our research.Setting: We investigate the informational content of South Africa’s output deviation cycles.Methods: We extract deviation cycles at standard high- and medium-frequency ranges (denoted as short- and medium-term deviation cycles respectively) and analyse their informational overlap with the components of an alternative theory-based estimate of the business cycle, decomposed into demand, supply, domestic and foreign sources of business cycle dynamics.Results: Our findings suggest that the contents of deviation cycles extracted over a high-frequency range do not neatly correspond to the transitory ‘demand-driven’ business cycle, while cycles extracted over a medium-frequency range correspond closely to the combined path of permanent output shocks.Conclusion: One should thus be cautious of drawing strong conclusions about the nature of business cycles from filter-based deviation cycle estimates, particularly if the objective of the study relies on assuming that high-frequency deviation cycles correspond to transitory demand shocks.

Different compositions of aggregate sentiment and their impact on macroeconomic stability

In recent times a number of agent-based models have been put forward that specify an aggregate sentiment as the difference between optimists and pessimists and let the agents endogenously switch between the two attitudes. The present paper extends this stylized framework by adding a third category, which may be viewed as neutrality. On this basis it then formulates a dynamic three-dimensional Goodwinian model with a special focus on multiple long-run equilibrium positions, which may emerge from just one and very natural nonlinearity in the switching process. The equilibria exhibit the same difference between optimists and pessimists and thus give rise to the same aggregate rate of growth, so that they cannot be distinguished at the macroeconomic level. The feature in which they nevertheless differ is the share of neutral agents. Remarkably, this affects stability. In particular, the trajectories may converge to one of two locally stable equilibrium points, or alternatively to a uniquely determined limit cycle. Coexistence of these attractors is absent in a two-state sentiment dynamics. Generally, the results may also be of interest to empirical business cycle research.

From ‘What Is New Political Economy’ to ‘Why Is Everything New Political Economy?’

In this paper I aim to try defining New Political Economy (NEP) as the economic study of politics, with a macroeconomic focus. It emerged from the influences mainly from the criticism of theory of economic policy, political business cycle research, public choice theory and new institutional economics. Due to its ample nature, different economists have different understandings of what it is, and their definitions may clash against each other. This article aims to be a contribution to dissipate this confusion.

The Business Cycle Resilience of the Western Cape Economy: A Regional Analysis of the 2009 Recession and Subsequent Recovery

Business cycle research received renewed attention in the run-up to, and in the aftermath of, the Great Recession. This paper focuses on the concept of regional economic resilience as an applied field of business cycle research. The resilience of the Western Cape regional economy is analysed by assessing the impact of the 2009 recession. Being one of the leading provincial economies of South Africa, the research considers the extent to which the 2009 recession impacted the Western Cape's long-term economic growth path. The latest research techniques in assessing economic resilience are applied, with a focus on quantifying the region's resistance to, and recoverability from, the 2009 recession. While the national and provincial contexts receive attention, the focus is on the district economies of the Western Cape. The drivers of economic resilience are decomposed into two key forces, namely industry mix and regional competitiveness, using a shift-share analysis. Longer term structural change is also considered. The paper finds that the Eden and Overberg district economies’ growth paths, and the way in which these regions absorbed the recession impact, may provide policymakers with pointers on how to revive the Western Cape's growth path, which took a knock with the 2009 recession.

American Support for German Economists after 1933: The Kiel Institute and the Kiel School in Exile

American Support for German Economists after 1933:The Kiel Institute and the Kiel School in Exile Gunnar Take (bio) the widespread racially and politically motivated attacks on German scientists in the spring of 1933 came as a surprise to many, not only in the local academic community but also in America and elsewhere. Some institutions, among them the Rockefeller Foundation (the Foundation hereinafter), were forced to make rapid decisions about whether to adapt or to cease entirely their support for those organizations affected by "the full force of the German blast of intolerance" (Van Sickle 1933a). In many cases, it was the academic excellence of the expelled scholars themselves that had been the reason for the Foundation's engagement since the 1920s. Now, after the Machtergreifung—the Nazis' seizure of power—the questions were whether and how to support the refugees in exile and how to deal with their former employers. Other kinds of institutions, such as American universities, were faced with the choice of whether to react at all to the events on the other side of the ocean. Many chose not to, whereas some, most notably the New School for Social Research in New York, decided to employ huge numbers of German emigrants. One case in which the different attitudes and strategies can be analyzed and assessed is the Institute for the World Economy at the [End Page 809] University of Kiel (the Kiel Institute), which became one of the main "centers of expulsion" from Germany in 1933, when eight members of the Kiel School were forced into exile. In the two decades leading up to 1933, the Kiel Institute had profited from the already widespread antisemitism and political intolerance in the German academic community. Its director, Bernhard Harms, pursued a liberal policy and was therefore able to attract large numbers of highly talented scholars who did not see adequate career opportunities for themselves at more distinguished universities. From 1926 onwards, most of these scholars were employed in a new department for business cycle research, and thus engaged in one of the most promising fields of economics in the interwar period. During the following "seven years of world class" economics (Hagemann 2008), they made significant contributions, especially with regard to the empirical observation and theorization of business cycles, global structural change, and the problem of technological unemployment. It has been convincingly argued that the heads of the department, Adolph Lowe1 and Gerhard Colm, founded a "Kiel School" (Hagemann 1997, 298), which asserted itself against the traditional German Historical School as well as against the Austrian liberals. Among its most striking characteristics were the attempts to create a synthesis between a socialist form of economic organization and planning on the one hand and an open society with a liberal market on the other. As one of many national and foreign observers, the Foundation followed its scientific progress closely and made highly positive evaluations: The Kiel Institute constitutes one of the bright spots in German economics. … Much of the work of German university professors is philosophical speculation or minute historical investigation. The work of a more scientific character is carried on in relatively few places. Kiel is one of these and may perhaps be regarded as the most important. [End Page 810] (Van Sickle 1932) During the 1920s, the Foundation supported the Kiel Institute in its endeavor to enlarge its research capacity, to establish contacts with international scholars, and to develop the biggest social science library in Europe. When the budget of the Institute had to be cut by about 50 percent during the Great Depression, the Foundation stepped in and secured the continued existence of the department for business cycle research—and hence the Kiel School—through a large grant. In reaction to the Preußenschlag (Prussian Coup) in the summer of 1932, the Foundation concentrated its funding of German economics even more on larger institutes such as the one in Kiel, which it deemed "to offer reasonable guarantees of permanence" (Kittredge 1932). Hence, the Foundation was heavily invested financially in the Kiel Institute by the time the Nazi regime took power in early 1933. In the case of John Van Sickle and Tracy Kittredge, the heads of...