Business Cycle Research Articles

Research on the Impact of Economic Development on Financial Derivatives

This paper aims to further investigate the impact of economic growth on the demand for financial derivatives, provide effective support to financial market participants and investors, and promote the stable development of financial markets. Firstly, time series analysis models, including autoregressive, mixed autoregressive, and moving average regression, are established by considering various factors in the financial market. Secondly, the basic characteristics of financial derivatives are thoroughly analyzed, and relevant variables are selected for explanation. Finally, the paper elucidates the fundamental functions of financial derivatives and their role in economic growth. The empirical results show that the correlation coefficient between non-financial institution derivatives and enterprise value is 0.2049, and the impact of enterprise economic growth on derivatives demand is 0.0003. Through time series analysis, the study reveals the impact mechanisms of economic cycles, business fluctuations, and other factors on the financial derivatives market, providing effective support for investors and participants.

Does the Eurozone live in a Minskyan world?

The purpose of this paper is to test Minsky's financial instability hypothesis for the Eurozone by focusing on his main conclusion: corporate debt ratios rise during the ascendant phase of the business cycle. Depending on how debt ratios are measured, our results are divided between (i) robust and (ii) imperfect empirical evidence of procyclical debt ratios. Moreover, we suggest that rising interest rates may not be the best policy to avoid a Minskyan process and that alternative measures deserve some attention. We believe these results call for future research.

The effect of labor mobility on corporate investment and performance over the business cycle

We show that time-series variation in investment opportunities and labor demand create heterogeneity in the effects of labor mobility on corporate investment over the business cycle. To isolate variation in labor mobility, we create an annual state-level index from 1984 through 2017 that captures the degree to which state courts enforce covenants not to compete. We find that firms located in more mobile labor markets increase investment rates more during economic expansions but have similar investment rates during periods of low or negative growth. This increased investment during expansions is greater for firms that rely more on recruiting skilled and experienced workers to grow their businesses, and it translates into higher sales growth rates, profits, and valuations. Overall, our results suggest that the benefits of being able to recruit qualified workers with relevant experience during expansions outweigh the costs associated with losing key workers.

Wealth Elasticity, Agent Heterogeneity and Fiscal Dynamics

The literature on fiscal policy has identified wealth elasticity of labor supply and agent heterogeneity as the linchpin of shaping different transmission mechanisms for fiscal policy. In this paper, I build these two important edifices on an otherwise canonical business-cycle model to conduct quantitative analyses of various fiscal policies. To underscore the relative importance of agent heterogeneity, I compare results from the model with agent heterogeneity with those from a standard model without agent heterogeneity. I also compare results from changes in wealth elasticity to analyze how the model ingredient delivers different macroeconomic and fiscal dynamics. The main finding reveals that in the context of the model formulated in this paper, the capital tax is the least detrimental to business cycles and fiscal states and the consumption tax is the most appropriate policy tool since it yields positive output and tax-revenue multipliers in the short and long runs. All the results from counterfactual experiments suggest that macroeconomic and fiscal outcomes hinge fundamentally on agent heterogeneity and wealth elasticity. An important value that this paper adds to the literature is to offer results from a comprehensive analysis of all possible fiscal policies by considering both essential forces.

Measuring Employer-to-Employer Reallocation

We revisit measurement of employer-to-employer (EE) transitions in the monthly Current Population Survey. The incidence of missing answers to the question on change of employer sharply increases starting with the introduction of a new software instrument to conduct interviews in January 2007 and of the Respondent Identification Policy in 2008–2009. We document nonrandom nonresponse selection by observable and unobservable worker characteristics that correlate with EE mobility. We propose a selection model and a procedure to impute missing answers. Our imputed EE aggregate series no longer trends down after 2000 and restores a close congruence with the business cycle after 2007. (JEL C83, E24, E32, J62)

Business cycles in Colombia: stylized facts

The purpose of this article is to examine the economic cycles in Colombia and to empirically corroborate the fulfillment of nine stylized facts documented in the specialized international literature. For this purpose, the retropolated series 1975-2013 and the series 2005:1-2022:4 of the National Administrative Department of Statistics (DANE) were analyzed using the Hodrick-Prescott filter. Thus, the occurrence of four economic cycles is recorded between 1975 and 2013 with an average duration of 9.3 years with an expansionary phase of 5.0 years and a contractionary phase of 5.3 years. Similarly, between 2005:1 and 2022:4 there were three cycles with an average duration of 21.7 quarters, with an expansionary phase of 14.7 quarters and a contractionary phase of 7.0 quarters. It should also be said that the cyclical fluctuations of employment and unemployment are closely related to effective demand and domestic demand in accordance with Keynesian theory; for example, the positive correlation between the real GDP cycle and the implicit GDP deflator cycle suggests that the cycles were not due to shifts in the aggregate production function as the dominant theory stresses, but to shifts in the aggregate demand function.

Exchange Rate Disconnect and the Trade Balance

We propose a model with costly international financial intermediation that links exchange rate movements to shifts in the demand for domestically produced goods relative to the demand for imported goods (trade rebalancing). Our model is consistent with stylized facts of exchange rate dynamics, including those related to the trade balance, which is typically overlooked in the literature on exchange rate determination. In a quantitative assessment, trade rebalancing explains nearly 50 percent of exchange rate fluctuations over the business cycle, whereas exogenous deviations from the uncovered interest rate parity—the primary source of exchange rate fluctuations in the literature—account for just above 20 percent. Using data on trade flows or the trade balance is key to properly identifying the determinants of the exchange rate. Thus, our model overcomes the sharp dichotomy between the real exchange rate and the macroeconomy embedded in other models of exchange rate determination.

The development planning of the Italian Mezzogiorno: a statistical-mathematical analysis by a Real Business Cycle model

Since the 1950s, the regions of the Italian South (Mezzogiorno) have benefited from large in-kind transfers (namely, the provision of goods and services financed by the richer Northern regions) with the aim of favouring their economic development. The research aim of this manuscript is to evaluate this planning strategy, namely, to understand whether the territorial transfers boost the Mezzogiorno’s development or, on the contrary, whether the crowding-out effect of the final government expenditure on private investment and household consumption is the reason for the longstanding low growth of this geographical area.To accomplish this goal, the authors write down and solve an appropriate Real Business Cycle model and carry out some stochastic simulations. Their findings demonstrate that the in-kind transfer strategy entails no benefits for the Southern regions. In addition, the authors, using an alternative specification of their baseline setting, document that an alternative approach based on infrastructural investment is effective in stimulating the long-term economic growth of the Italian South.

Limited Financial Market Participations and Shocks in Business Cycles in Korea

Limited Financial Market Participations and Shocks in Business Cycles in Korea

Emissions and Fluctuations in Global Value Chains: Cross-country and Industry-level Evidence

Purpose - This paper explores how global value chain (GVC) participation affects the comovement between real industrial value-added and emissions over business cycles. Design/Methodology - We follow de Soyres and Gaillard (2022) and Wang et al. (2022), first measuring the forward and backward links in GVC activities at the country and industry levels. Specifically, we examine both Simple and Complex GVC activities by considering the inclusion of indirect transactions through third countries. Second, we conduct a panel analysis on the covariation between value-added and emissions during economic f luctuations and the relationship with GVC participation rates. Findings - We find that the increase in participation rates in forward-link GVC activities enhances the covariation between economic fluctuations and emissions, whereas the effects of the change in participation rates in backward-link GVC activities are statistically insignificant. In contrast to EU members, this pattern is reversed in countries that depend largely on energy trade from a global perspective, such as the United States, Russia, Korea, and Japan. Originality/value - We contribute by quantitatively presenting the covariation of economic fluctuations and emissions within GVC activities, going beyond existing literature that predominantly explores growth, the environment, and trade. Our contrasting results among country groups indicate that as countries worldwide pursue carbon neutrality, the divergence in positions among countries based on their dependence on energy trade may intensify the likelihood of trade disputes.

Boom or bust? A Comparative Analysis of Monetary Policy and Stock Market Performance in India Across Economic Cycles

This study delves into the intricate relationship between monetary policy instruments and various sectors of the Indian stock market from 2011 to 2022. By Analyzing data encompassing significant policy shifts and economic events, including the Reserve Bank of India's (RBI) transition towards inflation targeting and flexible exchange rates, the study aims to uncover the nuanced impacts of monetary policy on sectoral indices. Utilizing a Vector Autoregression (VAR) model, the study examines the dynamic interplay between key monetary policy instruments—Cash Reserve Ratio (CRR), Marginal Standing Facility Rate (MSF), Repo Rate, Reverse Repo Rate, and Treasury Bills—and ten diverse sectors represented in the Bombay Stock Exchange (BSE) indices. The findings reveal intricate sectorspecific responses to monetary policy adjustments, reflecting the complex interplay of economic dynamics and policy measures. While some sectors exhibit positive correlations with certain monetary instruments, others display negative associations, underscoring the diverse impacts of monetary policy on sectoral performance. The study highlights the significance of understanding these nuanced relationships for policymakers, investors, and market participants in navigating India's evolving economic landscape.

21세기 애그플레이션의 원인에 관한 연구 : 민스키의 금융불안정 가설과 오스트리아학파의 경기변동론의 종합을 통한 재해석

21세기 애그플레이션의 원인에 관한 연구 : 민스키의 금융불안정 가설과 오스트리아학파의 경기변동론의 종합을 통한 재해석

Effect of Business Cycle, Income Diversification, and Financial Ratios on Bank Risk in the ASEAN Region

Research Aims: This research aims to analyze the influence of the business cycle, income diversification, and financial ratios as proxied by profitability and liquidity on the level of banking risk adjustment in ASEAN in the 2020-2022 period. Design/methodology/approach: The research used a sample of 93 banks in the ASEAN region. Sample selection applied purposive sampling techniques based on certain criteria in the Philippines, Indonesia, Malaysia, Singapore, Thailand and Vietnam. The estimation technique used is the Ordinary Least Square method on panel data to analyze the model being built. Research Findings: Research shows that the relationship between the business cycle and bank risk is negative. This means that when the economy is in a contraction phase, bank risk will decrease and vice versa. Then, banks that diversify their income can reduce bank risk. On the other hand, the influence of profitability and liquidity has a negative effect, meaning that a high level of income accompanied by liquid bank assets has the potential to reduce the level of bank risk. Apart from that, there are several other aspects that banks need to pay attention to in anticipating emerging risks, including previous year's credit risk, business size, loan loss reserves, asset growth and financial freedom. Theoretical Contribution/Originality: The originality of the research lies in its comprehensive approach to analyzing the impact of business cycles, income diversification, and financial ratios on bank risk in the ASEAN region. The study's methodology, variables, and empirical evidence all contribute to its originality and relevance to the existing literature Keywords: Revenue Diversification, Liquidity, Profitability, Bank Risk, Business Cycle

Synchronization of the business and financial cycle in the countries of the European Union

Synchronization of the business and financial cycle in the countries of the European Union

Application of Business Ethics By Shirkah Contract: A Case Study of Indonesian Farmer Tradition

Economists argue that positivism refers to science and economic activities should be value-free. This means that the norm variable is not included as a variable that has an important meaning for both output and production input. This is not the case with Islamic economics, which firmly states that economic activity is bound to value or is not value-free. This research aims to show evidence of shirkah or profit-sharing contracts and to dissect how elements of values and ethics accompany the business activities of Indonesian farming communities. The method used is a qualitative approach with case study techniques. Literature studies are also used to strengthen the validation and triangulation stages. This research shows that Shirkah contracts are found in agricultural activities in various regions in Indonesia, including those known as maro (50:50), mertelu (1:3), etc. Shirkah, as one of the contracts in Sharia finance, is an actual implementation of enforcing norms and ethics. The Shirkah contract manages the risks inherent in all business cycles, both during profits and losses, which is typical in all sectors. Shirkah contracts systematically work and control competition and business risks with an ethical and normative approach. The Shirkah contract also suppresses economic injustice and unequal distribution of resources and business profits. The domino effect of the values of the sharia contract is not only limited to production-sharing agreements between sharecroppers and land owners but also spreads to the spirit values of sale and purchase (Murabaha) and rental (ijarah) agreements and includes broad implications for all aspects life. Farmers and cultivators are actively involved in upholding the values of justice, risk sharing, and togetherness in facing the cycle of profit and loss that automatically occurs as a lifestyle. Musharaka, Morals-ethics, Risk management, Way of life

The Evolution of the Theory of Innovation Ecosystems in the Context of Strategisation

Introduction. The theory of innovation occupies one of the leading positions within the modern paradigm of economic development, as innovation is recognised as a driver of productivity improvement and cost optimisation, microeconomic stability, and macroeconomic growth. The determinants of innovation theory have become more profound, forming a synthesis with theories of economic cycles, technological development, entrepreneurship, management, and decision-making. Consequently, the theory of innovation has evolved, and the study of this process provides an up-to-date view of the theoretical foundation of innovation ecosystems. Aim and tasks. The aim is to systematise the stages of the evolution of the theory of innovation and strategic management and formalise the theoretical foundation of the modern theory of innovation ecosystems in the context of strategisation. Results. A systematic study of the genesis and ontogenesis of the theory of innovation and anagenesis of the theory of innovation ecosystem in the context of strategisation led to the determination of the characteristics of aromorphosis. Genesis and ontogenesis include the growing complexity of the innovation ecosystem and its adaptability to the changing innovation ecosystem in the long term, the dynamism of the composition of the innovation ecosystem without changing its strategic goals, the need for a second level of adaptation of the strategy of an individual actor within the strategy of the innovation ecosystem and strategic role, and increasing the integration of actors of the innovation process into systemic business processes (planning, organisation, motivation, control). Actors’ joint development within the ecosystem on mutually beneficial terms and possibilities for the strategic expansion of the innovation ecosystem locally and globally were analysed. In addition, the externalities of the development and spread of innovative ecosystems are outlined, and their strategic orientations are formulated. Conclusions. Due to anagenesis, an innovative ecosystem based on strategising improves adaptive resistance to changes in the external environment. Aromorphosis of an innovative ecosystem within anagenesis makes it possible to consider the properties of adaptation to the changing innovative ecotope as the basis of its theoretical foundation in the long term, the dynamism of the composition of the innovation ecosystem without changing its strategic goals, and the increasing integration of innovation process actors into systemic business processes.

Technology Trends Revolutionizing the World of Work- Auto Industry Perspective

Aim/Purpose: Disruptive technologies impact business cycles and work practices, paving the way for new-generation manufacturing trends. Organizations are constantly working to introduce products with a higher degree of innovation, catering to customer demands in the market. Background: The automobile industry plays a significant role in applying disruptive technologies while proving value to all stakeholders. The technological disruptions in the auto sector can potentially change the relationship between consumers and the automobile while impacting business trends and work practices. Methodology: Various scholarly research material was reviewed to understand the impact of technology disruptions on manufacturing methods, work practices, employee engagement, and skill development. Secondary data analysis was conducted for this qualitative and descriptive study. Contribution: This paper helps to understand the impact created by various technologies in the auto sector on employee retention—the role of man- Machine collaboration in creating job satisfaction among employees. Findings: Besides automation and digitalization, AI, Robotics, and Mechatronics play a crucial role in the sector's evolution. The study findings help us understand the impact of technology on manufacturing and business practices. Recommendation for Practitioners: Investment in training the workforce and embracing collaboration helps employees to benefit from the real world of work. Recommendation for Researcher: To ensure the relevance of research studies, practitioners and researchers should maintain a collaborative approach, using research insights to inform business strategies. Impact on Society : Analyze how technologies like collaborative robots (cobots) are integrated into manufacturing processes and their impact on job roles and efficiency. Technology continues to evolve, so societies shall proactively address challenges and leverage opportunities to take advantage of these innovations. It is the role of government policymakers, industry stakeholders, and educators to shape the auto industry's future in a way that maximizes the benefits to society from technological innovation. Future Research : The study's scope is to be done quantitatively by covering OEMs all over India. It discussed disruptive technology in general. Specific technological advancements can be analysed to dive deep into the phenomenon. A similar study could be undertaken in another industry besides the automobile.

Excess Capacity and Demand-Driven Business Cycles

Abstract I build a macroeconomic model that features chronic excess capacity. Firms can use their capacity to compete for buyers who are not fully attentive to prices. If one firm expands capacity while other firms do not, it “steals” or attracts profitable demand from others. Theoretically, I show that this capacity competition can cause an over-accumulation of capacity. In the presence of chronic excess capacity, capital resources can be slack, and demand shocks can have large effects on output. The model is consistent with stylized facts about capacity utilization and survey evidence from Switzerland. Quantitatively, when the model is estimated to match the U.S. macro data, demand shocks turn out to be the main driving forces of business cycles.

Optimal profit in two-level trade credit eoq model with default risk and reminder cost under finite time horizon having time-dependent demand and deterioration

Trade credit is a type of promotional activity that generally increases demand and revenue but also invites default risk due to dishonest customers. Due to default risk, revenue is lost, and to overcome this, an arrangement is made to remind the defaulters. A retailer dealing with a perishable item wants to exhaust the stock quickly after a certain deterioration level. Demand and deterioration of the products are normally dynamic. The business period of seasonal products is uncertain. Considering these facts, we formulate and analyze a two-level trade credit inventory model, where the wholesaler and retailer give credit periods to their corresponding downstream customers. After a certain level of deterioration, the retailer increases the credit period for the customers for early stock exhaustion, and to reduce default risk, a reminder cost is introduced. These activities increase the profit. The mathematical models under different circumstances are formulated for different time horizons. Some existing results are deduced. The models are numerically solved using a parametric study and the Generalised Reduced Gradient method through LINGO 19.0 software. Some lemmas and theorems are deduced to establish the analytical outcomes. Trade-offs between the number of the business cycle, trade credit, and reminder cost against optimum profit are separately demonstrated. The results with and without reminder cost are compared, and it is shown that the model with reminder cost fetches more profit. Profit under different uncertain environments are evaluated, and they differ marginally. Some beneficial impacts are discussed.

Did COVID‐19 induce a reallocation wave?

AbstractWe critically examine the hypothesis that COVID‐19 has ushered in a large reallocation shock in the USA, beyond typical business cycle patterns. We take a broad perspective, and first consider data from the CPS and JOLTS; there is no noticeable uptick in occupation or sector switches, either at the aggregate level or in the cross‐section. The dispersion of sectoral growth rates over the three years before the pandemic was similar to the previous period. The recovery from the initial shock was characterized by very high quits and low layoffs, patterns indicative of a strong labour market, not excessively high reallocation relative to previous business cycles. High growth of small employers in the recovery, and larger ones once the labour market tightened, is also a common cyclical pattern. We then examine whether mismatch unemployment rose as a result of the pandemic; using an off‐the‐shelf multisector search and matching model, there is little evidence for an important role for mismatch in driving the unemployment rate during the pandemic. Finally, we employ a novel Bayesian Structural Vector Autoregression framework with sign restrictions to identify a reallocation shock; we find that it has played a relatively minor role in explaining labour market patterns in the pandemic, at least relative to earlier episodes.