Bust Cycles Research Articles

Geopolitical risk and energy price crash risk

This paper explores the link between geopolitical risks and energy prices crash risk. Studying energy price crashes is important given the sharp fall in oil prices in 2008 and 2014. The analysis focuses on three energy markets: natural gas, oil, and coal, while it employs two measures: the negative coefficient of skewness and the down-to-up volatility, to construct proxies for crash risks. The period of examination is January 2000 to December 2023, whereas that for coal is January 2010 to December 2023. The study employs a modified version of the smooth transition autoregressive model. The results show that, within the modelling framework, coal and oil crash risks are driven by the cyclical behavior of geopolitical acts, whereas natural gas crash risks by geopolitical threats. Causality tests confirm the prediction that geopolitical tensions cause crash risks in energy markets. The results also confirm that the “Economic Activity Channel” is only valid for energy markets driven by geopolitical threats. Energy market regulators should be concerned about crash risks, given that the energy supply shows cyclical boom and bust cycles in prices and production. Crash risks could also potentially cause a fall in investments required to enhance energy efficiency.

What Makes a Smart Bank: The Case of Brde, a Last-Mile Subnational Development Bank in Brazil

Development banks are considered mission-oriented financial institutions that must act to fill gaps and market failures, supporting innovation with long-term financing in order to play a fundamental role in smoothing the risks associated with boom and bust cycles. . The existence and role of public development banks have been discussed for more than a century. Thus, this work proposes a case study with the analysis of the Subnational Development Bank - BRDE, in which there is a reference based on authors who discuss regional development and, subsequently, the case of BRDE, with the aim of describing the operation of a small bank in an emerging economy, its strengths and challenges. Therefore, it was possible to conclude that banks that have, at the same time, clarity of vision and mission and alignment of programs, flexibility to adjust to economic and social reality, solid financial results, robust governance attributes and autonomy - professional and collegial governance multilevel that increases the costs of both undue political pressure and bad credit decisions. From a financing point of view, the bank stands out for its technical capacity, which are critical but are important institutions to reinforce that its capillarity and knowledge of the context and local markets are useful for development. Thus, these banks provide financial instruments to expand financing at local and micro-regional levels, directly or through commercial banks and cooperatives. KEYWORDS: Regional development, banks, financial institutions, BRDE.

Boom and Bust Cycles of the World's Financial System and Islamic Modes of Finance as a Sustainable Alternative

The conventional financial system is based on credit financing. Banks advance loans to borrowers, charging interest thereupon and passing a portion to depositors/investors. Over the centuries, the world has been experiencing financial up and down cycles after every few decades. Global Financial Crisis of 2008 was the latest among all. The common thing in all these crises was the massive capital infusion of public into irrational speculative investments. On the contrary, Islamic financial system functions wholly on equity-based financing. Instead of offering credit, they offer to invest in assets either together with clients or exclusively. In former, both become partners whereas in the latter, bank becomes buyer by advancing finance and client becomes a seller. In this article an attempt would be made to analyse key actors of the financial crises and their aftermath on the World’s financial system and to explore Islamic modes of financing as a sustainable alternative.

Computing bias and variance for Pacific sardine (Sardinops sagax) biomass estimated from aerial surveys in California nearshore waters

Pacific sardine (Sardinops sagax) stocks off the U.S. Pacific coast undergo boom and bust cycles modulated by decadal changes in oceanic and atmospheric conditions. During periods of low abundance, Pacific sardine may contract into nearshore waters, making it more challenging to be surveyed by research vessels that cannot operate in the shallowest habitats, 0 to 40.00 m. In response, a new transect-based design and methods were developed to compute bias and variance of biomass estimated from a collaborative aerial survey implemented in nearshore waters. From experimental aerial surveys conducted in 2010 and from 2018 to 2020, two professional aerial fish spotters underestimated school biomass by 10.5% and 12.6%, whereas most of the variability of aerial biomass was due to within-transect variance, with no significant contribution from the among-transect variance. Implementation of the new transect-based design to aerial surveys from 2020 to 2023 in southern and northern California showed that a substantial biomass of Pacific sardine occurred in nearshore waters, representing 69.9% of total biomass estimated from acoustic surveys in spring 2021, and 36.5% in summer 2021. Seasonal biomass estimates were variable within each region, affected by school dynamics during daytime in nearshore waters and the timing of aerial surveys as determined by weather and environmental conditions. Given that nearshore aerial biomass comprised a measurable proportion of total biomass estimates for Pacific sardine during the recent period of low abundance, it has been used to inform acoustic survey catchability, which is no longer assumed to be 1.0 in recent Pacific sardine stock assessments.

ASSET‐MARKET SENTIMENTS AND BUSINESS CYCLE FLUCTUATIONS

AbstractWe present a tractable model that accommodates asset‐market sentiment in a standard Dynamic Stochastic General Equilibrium (DSGE) setting, allowing us to quantitatively evaluate sentiment‐driven macroeconomic fluctuations. In our model, changes in households' perceived uncertainty about housing prices lead to self‐fulfilling fluctuations in housing prices, which then impact investment and output through entrepreneurs' collateral constraints. Household sentiment shocks hence are transmitted and propagated to the macroeconomy, generating boom–bust cycles. Uncertainty, housing prices, and the real economy are linked. Quantitatively, the sentiment shock in the form of risk–panic is a crucial driver of business cycle fluctuations despite the presence of various competing shocks.

Double whammy? Trade and automation in engineering services

AbstractThis paper studies the role of trade for the joint uptake of AI‐enabled automation in manufacturing and engineering. It develops an agent‐based model (ABM) where the agents are heterogeneous manufacturers and engineering firms. The ABM features two technology‐related business models: engineering as a face‐to‐face consultancy service and engineering as automated software. The software adoption rate follows an S‐shaped curve for manufacturers and a boom and bust cycle for engineers. In the early phase, shortage of engineers constrains AI uptake, while engineers become abundant when AI is fully adopted. Trade affects the cut‐off productivity level at which manufacturers switch technology, the shape of the adoption rate curve, and the incentives for engineers to develop software. Bulky transactions and different productivity distributions across countries are drivers of trade in their own right.

Dependency revisited: commodities, commodity-related capital flows and growth models in emerging economies

The growth model perspective has provided avenues for bridging comparative and international political economy, mainly regarding the Global Financial Crisis and developments within the eurozone. This article aims to contribute to this endeavor by highlighting the joint effects of capital flows and commodity price swings on growth models in emerging capitalist economies. While the literature on dependent financialization has primarily focused on debt-led growth in the Global South, we spell out the negative implications of commodity-based export-led growth. To this end, we first present a stylized depiction of commodity dependence and provide descriptive statistical evidence of its global prevalence. Subsequently, we trace the co-movement of capital flows to emerging economies and commodity prices. We argue that this ‘commodity–finance nexus’ reinforces the pro-cyclical nature of commodity-based growth, financial volatility, and the vulnerability to global boom–bust cycles. Furthermore, we demonstrate that the conventional method for establishing growth models by calculating the relative contributions to growth is ill-suited to capture the commodity-based export-led growth model of highly commodity-dependent economies. Finally, we identify commodity price movements and fiscal policies as major drivers of growth, with an important role for domestic politics as an intervening variable.

Coupling Mountain Pine Beetle and Forest Population Dynamics Predicts Transient Outbreaks that are Likely to Increase in Number with Climate Change.

Mountain pine beetle (MPB) in Canada have spread well beyond their historical range. Accurate modelling of the long-term dynamics of MPB is critical for assessing the risk of further expansion and informing management strategies, particularly in the context of climate change and variable forest resilience. Most previous models have focused on capturing a single outbreak without tree replacement. While these models are useful for understanding MPB biology and outbreak dynamics, they cannot accurately model long-term forest dynamics. Past models that incorporate forest growth tend to simplify beetle dynamics. We present a new model that couples forest growth to MPB population dynamics and accurately captures key aspects of MPB biology, including a threshold for the number of beetles needed to overcome tree defenses and beetle aggregation that facilitates mass attacks. These mechanisms lead to a demographic Allee effect, which is known to be important in beetle population dynamics. We show that as forest resilience decreases, a fold bifurcation emerges and there is a stable fixed point with a non-zero MPB population. We derive conditions for the existence of this equilibrium. We then simulate biologically relevant scenarios and show that the beetle population approaches this equilibrium with transient boom and bust cycles with period related to the time of forest recovery. As forest resilience decreases, the Allee threshold also decreases. Thus, if host resilience decreases under climate change, for example under increased stress from drought, then the lower Allee threshold makes transient outbreaks more likely to occur in the future.

The Human Ecology of Overshoot: Why a Major ‘Population Correction’ Is Inevitable

Homo sapiens has evolved to reproduce exponentially, expand geographically, and consume all available resources. For most of humanity’s evolutionary history, such expansionist tendencies have been countered by negative feedback. However, the scientific revolution and the use of fossil fuels reduced many forms of negative feedback, enabling us to realize our full potential for exponential growth. This natural capacity is being reinforced by growth-oriented neoliberal economics—nurture complements nature. Problem: the human enterprise is a ‘dissipative structure’ and sub-system of the ecosphere—it can grow and maintain itself only by consuming and dissipating available energy and resources extracted from its host system, the ecosphere, and discharging waste back into its host. The population increase from one to eight billion, and >100-fold expansion of real GWP in just two centuries on a finite planet, has thus propelled modern techno-industrial society into a state of advanced overshoot. We are consuming and polluting the biophysical basis of our own existence. Climate change is the best-known symptom of overshoot, but mainstream ‘solutions’ will actually accelerate climate disruption and worsen overshoot. Humanity is exhibiting the characteristic dynamics of a one-off population boom–bust cycle. The global economy will inevitably contract and humanity will suffer a major population ‘correction’ in this century.

MALAYSIAN PROPERTY MARKET, THE STOCK MARKET AND MACROECONOMIC VARIABLES

This study examined the interactions and linkages between the property market, stock market, and macroeconomic variables. The stock market, in the long run, has a significant impact on property. Changes in house prices and stock markets have wealth and credit-price effects spilled over to economic growth. Both property and equity markets have a close dependency on income, inflation and monetary policy. The inference and dynamic relationship within asset markets have the capacity to explain the boom and bust cycles. The great potential lies with property and stock market interaction mechanisms to reflect economic conditions and as a source to enrich the present macroeconomic indicators. The Malaysian equity market was observed to be significantly co-integrated with the disaggregated real estate market (state level). The real estate market was mainly found to have a positive relationship with the stock market, GDP per capita (income) and consumer price index (CPI). However, real estate always had a negative relationship with interest rates. While real estate had a positive relationship with real GDP per capita in the long run, the relationship was not significant. This insignificance relationship covers all states and property types. The income coefficients were low and most of non-causality in the short run. This suggests a need for cautious from house price overheating. Price upsurge beyond the reach of the public may get caught with a sudden decline of the people’s affordability level. The impact of property price increase was higher than CPI (inflation). The inflation positive response on property is unusual as it normally follows the interest rate being negative. The shortage of affordable houses has pushed up prices. Inflation coefficients were mainly significant and much higher compared to stock and income coefficients. In short term dynamic linkages, bidirectional causality was detected between lending rates and the overall property market. This suggests a high temporal impact of monetary policy on the property market at the national level.

The role of venture capital and governments in clean energy: Lessons from the first cleantech bubble

After a boom and bust cycle in the early 2010s, venture capital (VC) investments have, once again, been flowing towards some green businesses since 2015. In this paper, we use Crunchbase data on 150,000 US startups active between 2000 and 2021 to better understand why VC investments have been relatively unsuccessful when funding new clean energy technologies. Both lackluster demand and a lower potential for outsized returns make clean energy firms less attractive to VC than startups in ICT or biotech. However, we find no clear evidence that financial constraints such as high-capital intensity or long development timeframe are behind the lack of success of VC in clean energy. In addition, our results show that while public sector investments might help attract VC investment, the ultimate success rate of firms receiving public funding remains small. Thus, stimulating demand will have a greater impact on clean energy innovation than investing in startups with a low likelihood of success. Only with demand-side policies in place should governments try to plug funding gaps by targeting clean energy startups with low potential for outsized returns, as they could continue to struggle attracting private capital.

Mobilizing through local agency to support place-based economic transition: A case study of Tumbler Ridge, BC

Small and remote resource towns face a variety of challenges, including boom and bust cycles, deindustrialization, as well as ineffective top-down development policies, which have undermined economic viability and community cohesiveness. In response, many communities have turned to locally-driven and bottom-up approaches to economic development. Drawing upon key informant interviews with a case study of Tumbler Ridge, British Columbia (BC), Canada, this research explores the role of local agency in mobilizing local investments to facilitate a place-based economic transition. Our findings highlight how vulnerabilities within the staples-dependent economy can provide opportunities for unlocking local talents, energies, and capabilities latent under paternalistic institutional structures. This can be achieved by investing in place-based economic planning, social and economic infrastructure, and place revitalization. We also highlight the importance of collective local agency and extra-local networks in mobilizing these investments to achieve local aspirations and vision.

Invasion dynamics of Ponto‐Caspian amphipods leads to changes in invertebrate community structure and function

AbstractBiological invasions remain one of the most pressing threats to biodiversity globally, with unprecedented rates of establishment that are unlikely to abate in the future. As such the occurrence of multiple interacting invasive non‐native species (INNS) is becoming more common. Despite this, much of the research on the interaction of multiple INNS is conducted within laboratory settings, with field studies remaining rare or being conducted as one‐off sampling. There is therefore a deficit of knowledge pertaining to the natural population trajectories of multiple INNS and the wider ecological implications for the structure and function of the native communities. Here we present multiple years of data collected from a reservoir in the United Kingdom, which has undergone invasion by three congener non‐native amphipods. We initially observed the coexistence of Dikerogammarus haemobaphes with Crangonyx pseudogracilis under habitat segregation in the reservoir. However, the following year saw complete displacement of C. pseudogracilis and reduced abundances of D. haemobaphes once the more competitive Dikerogammarus villosus established abundant populations in the reservoir. D. villosus exhibited strong effects for the structure and function of the wider macroinvertebrate community composition in addition to driving reductions in taxa and functional richness. Gastropoda taxa appeared to be unaffected by the invasion dynamics. Significant increases in functional divergence (and less so functional dispersion) values were also observed following D. villosus establishment, with this response metric possibly representing an important tool in detecting stress from biological invasions that we urge scientists to test more extensively. In contrast to D. villosus, D. haemobaphes implications for the wider ecological community appeared to be limited. Importantly, we observed evidence to suggest the presence of boom–bust cycles with the explosion of D. villosus leading to a dramatic drop in their abundances the following year. We believe that the wider ecological implications of their abundant populations were so great that resources were not sufficient within the reservoir to support their abundant populations, leading to the observed population collapses. We call for further studies that investigate the population trajectories and wider ecological implications of multiple non‐native species in field settings to further our limited knowledge base.

Estimation of the Seawater Lidar Ratio by MODIS: Spatial–Temporal Characteristics and Ecological Significance

The lidar ratio of seawater is an essential quantity related to both lidar retrieval and water constituent. However, few studies discuss its spatial–temporal characteristics and ecological significance, which limits its applications in lidar remote sensing and marine science. This paper investigates the spatial–temporal characteristics and ecological significance of the lidar ratio of seawater using satellite passive remote sensing, which is validated by in situ measurements. Spatially, nearshore lidar ratio values are higher than offshore, mainly owing to the high concentration of colored dissolved organic matter in nearshore water. Temporally, the lidar ratio in each hemisphere exhibits lower values in summer than in winter due to the annual boom–bust cycle of phytoplankton. Furthermore, the variability patterns of the lidar ratio are nearly consistent with those of the chlorophyll-to-carbon ratio, implying the high ecological significance of phytoplankton physiology. These findings will provide the foundation for the application of lidar ratio in marine science and lidar remote sensing.

Co‐op advertising in randomly fluctuating markets

We consider a dynamic Stackelberg game between a manufacturer and a retailer facing a randomly changing market environment (boom–bust cycle) modeled as a Markov process over time. The manufacturer announces the national advertising effort and a cooperative (co‐op) advertising subsidy, and the retailer sets the local advertising effort. We derive the optimal feedback equilibrium advertising strategies and show that the channel members are forward‐looking in their advertising decisions. In the single‐crisis case, both the necessary and sufficient conditions for a positive subsidy reveal that the subsidy decision hinges on the relative profit margins before and after the crisis. Our comparative statics analysis indicates that the presence of national advertising enriches the members' advertising behaviors significantly. Furthermore, the pre‐crisis (post‐crisis) aggregate advertising contribution of the supply chain generally decreases (increases) in the damage rate and the crisis likelihood, as in the single‐firm case. But the individual advertising behaviors of the members may exhibit richer structures, depending on the comparative advantages of the members in each state. In addition, our numerical studies demonstrate that channel members can suffer sizable losses when they adopt myopic advertising strategies over their regime‐switching counterparts. Finally, we extend our analysis to incorporate retail and brand competition and show that the channel members' advertising behaviors are reasonably consistent with those without competition.

Effects of global liquidity and commodity market shocks in a commodity-exporting developing economy

This paper assesses the effects and transmission mechanisms of global liquidity and commodity market shocks in Mongolia, a commodity-exporting developing economy, using a structural vector autoregression (SVAR) model. Results show that boom and bust cycles in commodity and international financial markets lead to business and financial cycles in the economy as these shocks account for 30, 45, and 60 percent of domestic output, real exchange rate, and lending rate fluctuations, respectively. Commodity demand shocks have more persistent and robust effects on domestic cycles than commodity supply shocks. Trade and financial (resource export revenues, lending rate, and exchange rate) channels are essential in transmitting the shocks. Buoyant commodity demand and global liquidity shocks lead to a significant fall in the domestic lending rate, while positive commodity supply and global liquidity shocks appreciate the real exchange rate.

Bank specialization, mortgage lending and house prices

This paper studies the link between banks’ geographic specialization and the growth in their mortgage lending. Specialized banks increase their lending relatively less during the boom (2004 - 2006) and they experience a lower reduction in their loans through the following bust (2007 - 2009). In the aggregate, bank specialization has an impact on the overall credit rather than a mere reallocation of lending: MSAs with a higher exposure to specialized banks experience less expansion and contraction in mortgages. As a result, higher bank specialization is associated with a less severe boom and bust cycle in house prices.

How modern methods of construction would support to meet the sustainable construction 2025 targets, the answer is still unclear

The United Kingdom (UK) construction industry is world renowned for its volatile boom and bust cycle, its inefficiencies, heavy environmental impact and recurring budget and programme overruns. The Construction 2025 Strategy was published by the UK Government and industry leaders with a vision of changing the industry for the better using four key targets i.e., reduction in construction projects duration, operational cost, level of greenhouse gas emissions, and import/export trade gap. This paper investigates whether a greater uptake in modern methods of construction (MMC) could help us achieve these targets. Key insights and findings from the existing literature on MMCs cost, time, greenhouse gas emissions and trade factors were analysed with strong indications of MMCs benefit to the targets. By using snowball sampling a quantitative survey was conducted on 134 professional working in the Architectural, Engineering and Construction sectors of UK with 23 questions on the four key targets. Cronbach’s Alpha and Pearson correlation analysis techniques were employed in conjunction with factor ranking to determine the internal validity, factor links and most important factors. The results showed that the majority of respondents believed that MMC could help us achieve the construction 2025 targets, with a similarity index ranking revealing that MMC would be of the most benefit to the greenhouse gas emissions and trade targets, however, all factors ranked tightly together. This body of research will benefit the UK Government, construction associations and industrial key stakeholders in their pursuit of reaching the reduction targets, and with only three years until the deadline, there is a strong chance they will promote MMC in the industry.

Be careful what you wish for: Resource boomtowns and disillusionment in the Surat Basin

Communities near resource extraction projects are notoriously prone to boomtown dynamics, and in the Australian context, the boom and bust cycles have shaped the nation's economic history. Australia is the seventh largest gas producer in the world, with production escalating after the establishment of onshore unconventional gas extraction in the early 2000′s. This paper examines the rapid development of onshore unconventional gas extraction, specifically coal seam gas, in the Surat Basin of Queensland, which is also the location of long-established and highly valued agricultural industries. The impact of neoliberal economic principles and public policies, broadly imposed from the early 1980s, caused many services to be rationalised across the region and smaller communities. A new industry, promising industry diversification, alternative employment and royalties, was promoted by the Queensland government and the gas companies in 2005. Very quickly however, tensions between the gas companies and the agricultural industry regarding secretive agreements, land use conflict and lack of consultation developed into blockades, protests and antagonism. Towns were also impacted with an escalation in land prices and competition for labour. Many residents of the Surat believed the government had been greedy in its haste to provide approvals with an eye to lucrative royalties, with little consideration for their welfare or their livelihoods. Resource economies throughout the world are replete with examples of this scenario. This paper documents the conflicts and the subsequent measures undertaken by government and the gas companies to appease the residents of the Surat, all of which took considerable time and expense. If more considered consultation and understanding had been developed prior to the first approvals being granted, this could have been avoided. This paper is timely, given that the Queensland has once again granted exploration licenses in the highly sensitive western Channel country without consultation or consideration, causing angst and uncertainty.

Diagnostic Business Cycles

Abstract A large psychology literature argues that, due to selective memory recall, decision-makers’ forecasts of the future are overly influenced by the perceived news. We adopt the diagnostic expectations (DE) paradigm [Bordalo et al. (2018), Journal of Finance, 73, 199–227] to capture this feature of belief formation, develop a method to incorporate DE in business cycle models, and study the implications for aggregate dynamics. First, we address (1) the theoretical challenges associated with modelling the feedback between optimal actions and agents’ DE beliefs and (2) the time-inconsistencies that arise under distant memory (i.e. when news is perceived with respect to a more distant past than just the immediate one). Second, we show that under distant memory the interaction between actions and DE beliefs naturally generates repeated boom–bust cycles in response to a single initial shock. We also propose a portable solution method to study DE in dynamic stochastic general equilibrium models and use it to estimate a quantitative DE New Keynesian model. Both endogenous states and distant memory play a critical role in successfully replicating the boom–bust cycle observed in response to a monetary policy shock.