Business Cycle Research Articles

Is the supermultiplier stable?

AbstractSupermultiplier models, which show how autonomous demand can drive both business cycles and long‐run GDP growth, are based on a stability assumption. In this paper I look at recent efforts to justify this assumption, and argue that they are not convincing. The supermultiplier literature generally assumes that business investment reacts very slowly to changes in the state of the economy, but faster adjustment speeds are consistent with US data and can generate instability.

Endogenous Financial Friction and Growth

Abstract Financial frictions have been considered a crucial factor in explaining growth disparities across countries. These frictions are typically viewed as an exogenous constraint on borrowing capacity that is assumed to be invariant to economic conditions, such as the level of GDP and business cycle fluctuations. However, assuming the exogenous constraint on borrowing often leads to unrealistic dynamics in macroeconomic variables, such as constant investment-to-GDP and loan-to-value ratios. Motivated by these limitations, we develop a growth model in which the severity of the borrowing constraint is endogenously determined. The borrowing constraint adversely affects growth and amplifies the negative effect of volatility on growth. However, these growth effects gradually disappear as the economy continues to grow, because debtors become more willing to honor their debts along with economic growth, resulting in an endogenous relaxation of the borrowing constraint.

A study of the dynamic relationship between the RMB exchange rate, foreign exchange reserves and monetary policy

In today's globalized economic environment, the relationship between China's RMB exchange rate, foreign exchange reserves and monetary policy has become more and more complex, and is crucial to the stability and sustainable development of the economy. The interactions among these three have a direct impact on China's macroeconomic situation, so it has become a very urgent task to study this relationship in depth. This study combines theoretical and empirical research to deeply analyze the dynamic relationship among these three, aiming to provide practical guidance for the formulation of China's monetary policy.This paper selects the time series data of RMB exchange rate, foreign exchange reserves and money supply from 2003 to 2023 to study the relationship between RMB exchange rate, foreign exchange reserves and monetary policy. This paper will deeply explore the impact of the government's market intervention on the RMB exchange rate under different exchange rate regimes, especially under the fixed exchange rate regime and the floating exchange rate regime. This paper will delve into the transmission mechanism of monetary policy, especially the flexibility and adaptability of monetary policy under the volatility of global financial markets and changes in economic cycles. In terms of empirical research, this paper will use the VAR model and the GARCH model for time series analysis to verify the applicability of the theoretical mechanism in practical situations and provide lessons for the formulation of future monetary policy.

On the Ethics of Fair Value Accounting: Distributive Effects, Distributive Injustice, and Implications for Social Peace

Fair value accounting is at the heart of arguably the world’s most prominent accounting standards, particularly US GAAP and IFRS. Fair value measurement has been the subject of intense debate. Among other things, it has been analyzed from an ethical perspective. However, this discussion has mainly been limited to the judgment involved in fair value measurement and the ethics of fair value in its ability to provide decision-useful information to interested parties. This study pushes the boundaries by adding a new dimension to the discussion of the ethics of fair value accounting by examining its ethics from a more systemic and societal perspective. Drawing on Austrian business cycle theory, it argues that fair value accounting facilitates certain distributive effects in inflationary monetary environments, thereby contributing to distributive injustice and potentially to social discord. In this respect, fair value accounting—in contrast to historical cost accounting—should not be considered fair or just, but unethical instead.

Global Value Chains and Trade Patterns: A Comparative Analysis between Developed and Developing Countries

With the continuous deepening of economic globalization, the economic interconnections among countries worldwide are increasingly close, making it impossible for any country's development to exist in isolation. The degree of economic interdependence and permeation between countries continues to deepen. In recent years, with the reduction of transportation and communication costs, the "fragmented" production model has rapidly spread globally. More and more goods are no longer produced and sold by a single country but are completed through vertical division of labor cooperation among multiple countries, with each country undertaking different stages of product production. This production model has driven the formation and development of global value chains. The deepening of global value chains has made the mutual influence between international economic cycles increasingly apparent. However, with the rise of the "anti-globalization" sentiment and trade protectionism, especially against the backdrop of the COVID-19 pandemic sweeping the globe and sluggish world economic growth, the external environment facing China's participation in the global value chain division of labor has undergone profound changes. In this situation, how to effectively respond to various risk challenges to maintain the steady and sustainable development of the Chinese economy has become an urgent and important issue that needs to be addressed.

Etika Bisnis Islam: Pendekatan Siklus Ekonomi dan Praktik Bisnis Syariah dalam Ekspansi Waralaba Industri Retail

In this era of globalization, franchise expansion has become one of the main strategies for the growth of the retail industry. However, in a business context governed by Islamic principles, the concept of business ethics becomes increasingly relevant. This article explores the role of Islamic Business Ethics in the context of franchise expansion in the retail industry, with a focus on economic cycles and sharia business practices. Through a literature review, this article describes how Islamic business ethical values can direct franchise expansion steps, manage risks in fluctuating economic cycles, and implement sharia business practices that are in accordance with Islamic principles. This research discusses the implications of Islamic business ethics in strengthening the foundations of sustainability and long-term success for the retail industry which focuses on the principles of justice, social responsibility and economic balance. The research results show that the application of Islamic business ethics in franchise expansion in the retail industry can improve business performance, strengthen consumer trust, and promote business sustainability. This research highlights the importance of understanding and applying the principles of Islamic business ethics in the context of modern business, especially in the retail industry.

Exploring Circular Digital Economy Strategies for Sustainable Environmental, Economic, and Educational Technology

This research explores the strategic implementation of digital economy principles to achieve environmental sustainability and economic prosperity, utilizing the SmartPLS method. In an era marked by heightened awareness of environmental challenges and the urgent need for sustainable economic solutions, the digital economy emerges as a promising and innovative approach. This study primarily focuses on the integration of digital technologies throughout the product and service life cycle, with the objectives of extending product longevity, minimizing waste, and enhancing resource efficiency. Through an extensive review of literature and multiple case studies, we delve into various dimensions of the digital circular economy. These dimensions include innovative business models, the pivotal role of consumers, the challenges encountered during implementation, and their overall impact on economic growth. The findings underscore the crucial importance of cross-sectoral collaboration and the formulation of supportive policies to unlock the full potential of this economic model. Moreover, this research highlights the synergies between digital transformation and circular economy practices, suggesting that their convergence can significantly drive sustainable progress in contemporary society. By presenting comprehensive insights into the digital economic cycle, this study aims to contribute to the discourse on sustainable innovation and provide a roadmap for policymakers, businesses, and researchers to foster a more sustainable and prosperous future.

Sustainability Assessment of 2G Bioethanol Production from Residual Lignocellulosic Biomass

The development of sustainable biofuels can help to reduce the reliance on fossil fuels and mitigate the impact of climate change. This study analyzes bioethanol production from agro-forestry residual biomass, namely eucalyptus residues and corn stover. The study includes process simulation using Aspen Plus software, followed by economic analysis and life cycle assessment (LCA) with the help of SimaPro software and by applying the environmental footprint (EF) 3.0 method. The economic analysis on the biorefinery’s economic viability, equipment, and production costs reveals a positive decision for bioethanol production from eucalyptus residues due to logistical and transportation costs. The minimum ethanol selling price (MESP) obtained was 2.19 €/L and 2.45 €/L for eucalyptus residues and corn stover, respectively. From the LCA with a functional unit of 1 MJ of ethanol, bioethanol production from eucalyptus residues results in a single score impact of 37.86 µPt, whereas for corn stover, it is 33.47 µPt. In the climate change impact category, the eucalyptus residues scenario has an impact of 0.264 kg CO2 eq/MJ ethanol while corn stover leads to 0.254 kg CO2 eq/MJ ethanol. In-situ enzyme production, heat integration, and the use of renewable energy sources were also analyzed. Combining in situ enzyme production with renewable energy sources lowers CO2 equivalent emissions by 89% for both feedstocks, in comparison to the base-case scenario.

The impact of Covid‐19 on banking groups’ balance sheets in the euro area

AbstractMost studies have found that the Covid‐19 pandemic did not negatively impact the euro area banking industry's performance at an aggregate level. This study explores whether this finding still holds using the return on assets of 16 banking groups operating in the euro area and considering bank‐specific factors, idiosyncrasies related to different exposures of their portfolios to the business cycle and weaknesses stemming from underlying structural vulnerabilities. The banking groups are classified into clusters using unsupervised learning techniques. This research contributes to the empirical literature on the determinants of banks’ performance by highlighting the importance of banks’ heterogeneity, notably controlling for differential performance due to asset quality, solvency and business model. In addition, this paper shows that the magnitude of return on assets’ exposure to the business cycle varies across banks and that inflation in the euro area matters only for a subset of them. Importantly, the study sheds some light on the possible reasons for the mixed results in the literature regarding the role of non‐interest income, the T1 capital ratio and inflation. Finally, no significant effects of the Covid‐19 variables on banks’ return on assets are found during the first seven quarters of the pandemic.

Near-term forward rate spread and commodity index relationship with real economic activity in Brazil

This study investigates the relationship between Brazilian economic cycles and two key indicators: the international S&P GSCI commodity index and the near-term forward spread derived from the Brazilian interest rate term structure. We find that the forward spread serves as a robust leading indicator of economic downturns in Brazil, offering recession forecasts up to four quarters in advance. This underscores a link between yield curve steepness and recession likelihood in Brazil. However, we uncover distinct cyclical behaviors in Brazil's term structure that diverge from patterns in the United States. Furthermore, our research reveals the significant influence of commodity price fluctuations on Brazil's economic performance, underscoring a strong correlation between commodity markets and economic outcomes. Examining term structure and commodity prices together provides novel insights into monitoring emerging market cycles. These indicators can assist policymakers and improve early warning systems, especially in developing economies like Brazil.

Commodity prices and international Inflation, 1851–1913

This paper uses annual data to study the impact of commodity prices on consumer prices in 15 economies from 1851 to 1913. We calculate a simple measure of the common component of commodity prices which co-moves with the international business cycle and Granger causes consumer price inflation. Commodity prices are significant in standard inflation equations estimated by OLS in 14 of 15 economies. Estimating these equations using real shipping costs as an instrument suggests that commodity price movements associated with shifts in demand arising from international business cycles have a particularly large impact on inflation.

Efek Kompetitif Merger Bank Syariah Indonesia Terhadap Penyaluran Pembiayaan UMKM Dan Non-UMKM

Bank Syariah Indonesia (BSI) is merged of three state-owned subsidiary Islamic banks, namely Bank Syariah Mandiri (BSM), Bank Negara Indonesia (BNI) Syariah, and Bank Rakyat Indonesia Syariah (BRIS). The merger of the three banks is expected to provide benefits, especially for the majority of Indonesian Muslims. In addition, it can also increase the value of the company by increasing profits both through raising funds and distributing financing. This study was conducted to examine the competitive effect of Bank Syariah Indonesia merger on the distribution of UMKM financing, non-UMKM financing, total financing. The bank's performance to be tested consists of market share, net trade cycle (NTC), investment, interest expense, and return on asset (ROA) in pre and post merger at Bank Syariah Indonesia. This study used 53 data, 5 bank data after the merger and 48 bank data before the merger to test the hypothesis whether there is an influence of market share, NTC, investment, ROA on UMKM financing, non-UMKM financing and total financing. The results showed that investment variables affect UMKM financing, non-UMKM financing and total financing while market share, NTC, interest expense, and ROA variables do not affect UMKM financing, non-UMKM financing and total financing.

Bilateral Remittance Inflows to Asia and the Pacific: Countercyclicality and Motivations to Remit

This paper examines the cyclicality of remittance inflows to economies in Asia and the Pacific, aiming to identify major factors associated with remittances using gravity models of bilateral remittances. An analysis that assesses correlation coefficients between the cyclical factors of remittances and gross domestic product suggests that remittances tend to be countercyclical, or acyclical, against the business cycle of the remittance-receiving economy relative to the sending economy. This observation is confirmed by the gravity models of bilateral remittances. Furthermore, the estimation results suggest that migrant stock is one of the most significant factors affecting bilateral remittances. The study also shows that an increase in bilateral remittances can be attributed to a higher occurrence of disasters triggered by natural hazards in receiving economies, an appreciation of the receiving economy’s currency value against the sending economy’s, a lower interest rate differential (receiver–sender), greater capital account openness, more political instability, and lower costs of remittances.

Unusual shocks in our usual models

We propose a method to allow usual business cycle models to account for the unusual COVID episode. The pandemic and the public and private responses to it are represented by a new shock called the Covid shock, which loads onto wedges that underlie the usual shocks and comes with news about its evolution. We apply our method to a standard medium-scale model, estimating the loadings with 2020q2 data and the evolving news using professional forecasts. The Covid shock accounts for most of the early macroeconomic dynamics, was inflationary and a persistent drag on activity, and the majority of its effects were unanticipated. We also show how the Covid shock can be used to estimate DSGE models with data before, during, and after the pandemic.

Use of dishwashers fails to inactivate foodborne pathogens in home-canned model foods

Risky home canning techniques are still performed for food preservation due to limited science-based recommendations. This study aimed to evaluate the inactivation of Shiga toxin-producing Escherichia coli O157:H7, Salmonella enterica (ser. Typhimurium, Enteritidis, and Infantis) and Listeria monocytogenes during home canning with a household dishwasher. The 450 mL of blended tomato (acidic liquid food) and potato puree (non-acidic solid food) were prepared with 1.5 % salt and 25 mL vinegar as model foods in glass jars (660 mL). The two model foods were sterilized, then inoculated with separate cocktails of each pathogen at 106–107 CFU/g. The prepared jars were placed in the bottom rack of a dishwasher and subjected to the following cycles: economic (50 °C, 122 min), express (60 °C, 54 min), and intensive (70 °C, 96 min). Temperature changes in jars were monitored by using thermocouples during heat treatment. Within the center of the jars, temperatures were measured as 45 to 53 °C in blended tomato and 44 to 52 °C in potato puree during all tested dishwasher cycles, respectively. The economic cycle treatment reduced S. enterica, E. coli O157:H7, and L. monocytogenes populations by 3.1, 4.6, and 4.2 log CFU/g in blended tomato (P ≤ 0.05), where a <1.0 log reduction was observed in potato puree (P > 0.05). All pathogens showed similar heat resistance during the express cycle treatment with a log reduction ranging from 4.2 to 5.0 log CFU/g in blended tomato and 0.6 to 0.7 log CFU/g in potato puree. Reduction in L. monocytogenes population was limited (0.6 log CFU/g) compared to E. coli O157:H7 (2.0 log CFU/g) and S. enterica (2.7 log CFU/g) in blended tomato during the intensive cycle treatment (P ≤ 0.05). Dishwasher cycles at manufacturer defined settings failed to adequately inactivate foodborne pathogens in model foods. This study indicates that home-canned vegetables may cause foodborne illnesses when dishwashers in home kitchens are used for heat processing.

Bibliometric Analysis of Key Issues and Objectives in Environmental, Economic, and Social Sustainable Project Management

The environmental, economic, and social sustainability of construction project management was researched through a literature review in this study. This paper aimed to analyze the trends in studies about issues in sustainable project management and to research the importance and components of environmental, economic, and social sustainability and their interrelationships. In the scope of the bibliometric analysis, the articles were analyzed by their publication years, authors, authors' countries, authors' organizations, and keyword occurrences. Then, the problems in ensuring the sustainability of construction project management and suggestions for overcoming these problems were reviewed. In previous studies, high energy and raw material consumption and waste became the main factors that prevented environmental sustainability. A strong relationship was found between economic sustainability and life cycle cost assessment, and effective stakeholder engagement is considered the major contributor to the social sustainability of construction management. Sustainability regulations and policies, managerial capabilities, and organizational learning also have critical significance for achieving sustainable construction. The dimensions of sustainability in construction management are closely related to one another, and each one is crucial to achieving the other aspects of sustainability in construction projects. Therefore, a comprehensive strategy that takes into account social, economic, and environmental sustainability criteria should be adopted in construction project management.

Examining business cycles and optimal monetary policy in a regional DSGE model

I construct a dynamic stochastic general equilibrium (DSGE) model consisting of geographic regions and use state level data to estimate the effects that monetary policy and financial shocks have on the four census regions of the United States. The DSGE model I use is constructed around a centralized monetary authority and financial market with regional output, labor and investment markets. I find significant heterogeneity amongst the regional structural parameters of the model, creating different business cycle dynamics for the four regions. The estimated model aligns with other economic studies that suggest that monetary shocks have a greater impact in certain geographic regions in terms of employment, inflation, wages, and consumption. Simulating the estimated model, I find that monetary policy that considers the regional variation in output and inflation can significantly lower the volatility around national output and inflation. The paper’s results suggest that regional macroeconomic conditions should be considered in monetary policy decisions.

Cross-sectional financial conditions, business cycles and the lending channel

I document business cycle properties of the cross-sectional distributions of U.S. stock returns and credit spreads. The skewness of returns of financial firms (SRF) best predicts economic activity, while being a barometer for the lending channel—credit supply shifts beyond what is explained by borrowers’ conditions. SRF also predict firm-level investment beyond firms’ balance sheets. Using a structural model, I estimate that while SRF is highly cyclical, shocks to the cross-sectional skewness of financial firms’ asset quality help explain GDP growth in historical episodes. These results point to the cross-section of financial firms playing a prominent role in business cycles.

Firm age, size, and firm-level job creation and destruction

This study examines the effects of firm age and size on job creation and destruction of existing firms, using large-scale panel data from Japan. It contributes to the literature by examining the effects on firm-level job creation and destruction, differing from previous studies which focused on net employment growth (i.e., the difference between job creation and destruction for each firm) or job creation/ destruction on aggregated level (calculated by aggregating net employment increases/decreases of firms or plants). Results show that for an individual firm, age has significantly negative effects on the firm's job creation and destruction; however, size has a significantly negative effect on the firm's job creation but a significantly positive effect on its job destruction. Particular firm groups and different business cycles are further examined. The findings suggest that policy and managerial issues differ between a firm's expansion and aging.

The Effect of the Countercyclical Capital Buffer on the Stability of the Housing Market

AbstractAfter the great turmoil of the latest financial crisis, the criticism of the regulatory frameworks became increasingly stronger. The rules that banks needed to comply with are presumed to be procyclical and unable to prevent and mitigate the extent of strong financial and economic cycles. As a result, Basel III introduced a set of macroprudential tools to overcome these regulatory shortfalls. One tool that strives to counteract the issue of procyclicality is the countercyclical capital buffer ($$CCyB$$ CCyB ). This paper introduces a heterogeneous agent-based model that investigates the implication of the new regulatory measure. We develop a housing and a financial market where economic agents trade residential property that is financed by financial institutions. To examine the macroeconomic performance of the $$CCyB$$ CCyB , we evaluate the dynamics of key stability indicators of the housing and the financial market under four different market conditions: in an undisturbed market and in times of three different structural shocks. Computational experiments reveal that the $$CCyB$$ CCyB is effective in stabilizing the housing and the financial market in all market settings. The new macroprudential tool helps to mitigate economic fluctuations and to stabilize market conditions, especially in the aftermath of a crisis. It is not able to prevent any of the crises tested. However, the extent of the stabilizing effect varies according to market conditions. In the shock scenarios, the $$CCyB$$ CCyB performs better in dampening market fluctuations and increasing banking soundness than in the base scenario.