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== Identifying == [[File:Businesscycle figure1.jpg|thumb|upright=2.05|Economic activity in the United States, 1954β2005]] [[File:Businesscycle figure3.jpg|thumb|upright=2.05|Deviations from the long-term United States growth trend, 1954β2005]] In 1946, economists [[Arthur F. Burns]] and [[Wesley Clair Mitchell|Wesley C. Mitchell]] provided the now standard definition of business cycles in their book ''Measuring Business Cycles'':<ref>A. F. Burns and W. C. Mitchell, ''Measuring business cycles'', New York, National Bureau of Economic Research, 1946.</ref> {{blockquote|sign=|source=|Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; in duration, business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar characteristics with amplitudes approximating their own.}} According to A. F. Burns:<ref>A. F. Burns, Introduction. In: Wesley C. Mitchell, ''What happens during business cycles: A progress report''. New York, National Bureau of Economic Research, 1951</ref> {{blockquote|Business cycles are not merely fluctuations in aggregate economic activity. The critical feature that distinguishes them from the commercial convulsions of earlier centuries or from the seasonal and other short term variations of our own age is that the fluctuations are widely diffused over the economy β its industry, its commercial dealings, and its tangles of finance. The economy of the western world is a system of closely interrelated parts. He who would understand business cycles must master the workings of an economic system organized largely in a network of free enterprises searching for profit. The problem of how business cycles come about is therefore inseparable from the problem of how a capitalist economy functions.}} In the United States, it is generally accepted that the [[National Bureau of Economic Research]] (NBER) is the final arbiter of the dates of the peaks and troughs of the business cycle. An expansion is the period from a trough to a peak and a recession as the period from a peak to a trough. The NBER identifies a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production".<ref name="NBER">{{cite web|url=https://www.nber.org/cycles/ |title=US Business Cycle Expansions and Contractions |publisher=NBER |access-date=2009-02-20 |url-status=dead |archive-url=https://web.archive.org/web/20090219215409/https://www.nber.org/cycles/ |archive-date=February 19, 2009 }}</ref> === Upper turning points of business cycle, commodity prices and freight rates === There is often a close timing relationship between the upper turning points of the business cycle, commodity prices, and freight rates, which is shown to be particularly tight in the grand peak years of 1873, 1889, 1900 and 1912.<ref>Jan Tore Klovland {{cite web |url=http://econpapers.repec.org/article/eeeexehis/v_3a46_3ay_3a2009_3ai_3a2_3ap_3a266-284.htm |title=EconPapers: New evidence on the fluctuations in ocean freight rates in the 1850s |access-date=2013-07-30 |url-status=live |archive-url=https://web.archive.org/web/20140222133500/http://econpapers.repec.org/article/eeeexehis/v_3a46_3ay_3a2009_3ai_3a2_3ap_3a266-284.htm |archive-date=2014-02-22 }}</ref> Hamilton expressed that in the post war era, a majority of recessions are connected to an increase in oil price.<ref>Hamilton, J. D. (2008). Oil and the macroeconomy, in S. N. Durlauf & L. E. Blume, eds, "The New Palgrave Dictionary of Economics".</ref> Commodity price shocks are considered to be a significant driving force of the US business cycle.<ref>Gubler, M., & Hertweck, M.S. (2013). (p. 3-6). "Commodity Price Shocks and the Business Cycle: Structural Evidence for the U.S".</ref> Along these lines, the research in [Trimbur, 2010, ''International Journal of Forecasting''] shows empirical results for the relation between oil-prices and real GDP. The methodology uses a statistical model that incorporate level shifts in the price of crude oil; hence the approach describes the possibility of oil price shocks and forecasts the likelihood of such events.<ref>{{cite journal |last1=Trimbur|first1= Thomas M. |year=2010 |title=Stochastic outliers and levels in time series with application to oil prices| journal=International Journal of Forecasting}}</ref> === Indicators === {{main|Inverted yield curve}} [[Economic indicators]] are used to measure the business cycle: [[consumer confidence index]], [[Retail trade|retail trade index]], [[unemployment]] and [[Gross domestic product|industry/service production index]]. [[James H. Stock|Stock]] and [[Mark Watson (economist)|Watson]] claim that financial indicators' predictive ability is not stable over different time periods because of [[economic shock]]s, random fluctuations and development in [[financial system]]s.<ref>Stock, J.H., & Watson, M.W. (1999). (pp. 3β14). "Business Cycle Fluctuations in US Macroeconomic Time Series", Amsterdam: Elsevier.</ref> [[Sydney C. Ludvigson|Ludvigson]] believes consumer confidence index is a [[coincident indicator]] as it relates to consumer's current situations.<ref>Ludvigson, S.C. (2004). (pp. 29β45). "Consumer Confidence and Consumer Spending. Journal of Economic Perspectives."</ref> [[Joseph Winston|Winton]] & Ralph state that retail trade index is a benchmark for the current economic level because its aggregate value counts up for two-thirds of the overall GDP and reflects the real state of the economy.<ref>Winton, J., & Ralph, J. (2011). (p. 88). "Measuring the accuracy of the Retail Sales Index. Economic and Labour Market Review".</ref> According to Stock and Watson, [[Unemployment compensation|unemployment claim]] can predict when the business cycle is entering a downward phase.<ref>Stock, J.H., & Watson, M.W. (2003a). (pp. 71β80). "How Did Leading Indicators Forecasts Perform During the 2001 Recession?. Economic Quarterly β Federal Reserve Bank of Richmond".</ref> [[European Central Bank|Banbura]] and [[European Central Bank|RΓΌstler]] argue that industry production's GDP information can be delayed as it measures real activity with real number, but it provides an accurate prediction of GDP.<ref>Banbura, A., & RΓΌstler, G. (2011). (pp. 333β342). "A Look Into the Factor Model Black Box: Publication Lags and the Role of Hard and Soft Data in Forecasting GDP. International Journal of Forecasting".</ref> Series used to infer the underlying business cycle fall into three categories: [[Lagging indicator|lagging]], [[Coincident indicator|coincident]], and [[Leading indicator|leading]]. They are described as main elements of an analytic system to forecast peaks and troughs in the business cycle.<ref>The Conference Board (2021). https://conference-board.org/data/bci/index.cfm?id=2151.</ref> For almost 30 years, these economic data series are considered as "the leading index" or "the leading indicators"-were compiled and published by the [[U.S. Department of Commerce]]. A prominent coincident, or real-time, business cycle indicator is the [[Aruoba-Diebold-Scotti Index]]. === Spectral analysis of business cycles === Recent research employing [[Frequency domain|spectral analysis]] has confirmed the presence of [[Kondratiev wave]]s in the world GDP dynamics at an acceptable level of statistical significance.<ref name="See">See, e.g. [[Andrey Korotayev|Korotayev, Andrey V.]], & Tsirel, Sergey V. [http://www.escholarship.org/uc/item/9jv108xp A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008β2009 Economic Crisis] {{webarchive|url=https://web.archive.org/web/20100615181441/http://escholarship.org/uc/item/9jv108xp |date=2010-06-15 }}. ''Structure and Dynamics''. 2010. Vol. 4. no. 1. pp. 3β57.</ref> [[Andrey Korotayev|Korotayev]] & Tsirel also detected shorter business cycles, dating the Kuznets to about 17 years and calling it the third sub-harmonic of the Kondratiev, meaning that there are three Kuznets cycles per Kondratiev.{{technical inline|date=April 2014}} ===Recurrence quantification analysis=== [[Recurrence quantification analysis]] has been employed to detect the characteristic of business cycles and [[economic development]]. To this end, Orlando et al.<ref>{{cite journal |last1=Orlando |first1=Giuseppe |last2=Zimatore |first2=Giovanna |title=RQA correlations on real business cycles time series |journal=Indian Academy of Sciences β Conference Series |date=18 December 2017 |volume=1 |issue=1 |pages=35β41 |doi=10.29195/iascs.01.01.0009|doi-access=free }}</ref> developed the so-called recurrence quantification correlation index to test correlations of RQA on a sample signal and then investigated the application to business time series. The said index has been proven to detect hidden changes in time series. Further, Orlando et al.,<ref name="sciencedirect.com">{{cite journal |last1=Orlando |first1=Giuseppe |last2=Zimatore |first2=Giovanna |title=Recurrence quantification analysis of business cycles |journal=Chaos, Solitons & Fractals |date=1 May 2018 |volume=110 |pages=82β94 |doi=10.1016/j.chaos.2018.02.032 |bibcode=2018CSF...110...82O |s2cid=85526993 |url=https://www.sciencedirect.com/science/article/abs/pii/S0960077918300924 |language=en |issn=0960-0779}}</ref> over an extensive dataset, shown that recurrence quantification analysis may help in anticipating transitions from laminar (i.e. regular) to turbulent (i.e. chaotic) phases such as USA GDP in 1949, 1953, etc. Last but not least, it has been demonstrated that recurrence quantification analysis can detect differences between macroeconomic variables and highlight hidden features of economic dynamics.<ref name="sciencedirect.com"/> === Cycles or fluctuations? === The Business Cycle follows changes in stock prices which are mostly caused by external factors such as socioeconomic conditions, inflation, exchange rates. [[Intellectual capital]] does not affect a company stock's current earnings. [[Intellectual capital]] contributes to a stock's return growth.<ref>copied from Wikipedia article [[Intellectual capital]] The Impact of Intellectual Capital on a Firmβs Stock Return | Evidence from Indonesia | Ari Barkah Djamil, Dominique Razafindrambinina, Caroline Tandeans | Journal of Business Studies Quarterly 2013, Volume 5, Number 2</ref> Unlike long-term trends, medium-term data fluctuations are connected to the monetary policy transmission mechanism and its role in regulating inflation during an economic cycle. At the same time, the presence of nominal restrictions in price setting behavior might impact the short-term course of inflation.<ref>{{Cite journal |last1=Mkrtchyan |first1=Ashot |last2=Dabla-Norris |first2=Era |last3=Stepanyan |first3=Ara |date=2009-03-01 |title=A New Keynesian Model of the Armenian Economy |url=https://papers.ssrn.com/abstract=1372944 |language=en |location=Rochester, NY|ssrn=1372944 }}</ref> In recent years economic theory has moved towards the study of ''economic fluctuation'' rather than a "business cycle"<ref>{{cite journal |last1=Mankiw |first1=Gregory |year=1989 |title=Real Business Cycles: A New Keynesian Perspective |journal=The Journal of Economic Perspectives |volume=3 |issue=3 |pages=79β90 |issn=0895-3309 |jstor=1942761 |doi=10.1257/jep.3.3.79|doi-access=free }}</ref> β though some economists use the phrase 'business cycle' as a convenient shorthand. For example, [[Milton Friedman]] said that calling the business cycle a "cycle" is a [[misnomer]], because of its non-cyclical nature. Friedman believed that for the most part, excluding very large supply shocks, business declines are more of a monetary phenomenon.<ref>{{cite book|title=Money in Historical Perspective|last=Schwartz|first=Anna J.|year=1987 |publisher= University of Chicago Press|isbn= 978-0226742281 |pages=24β77 |url= https://books.google.com/books?id=w2DFBgAAQBAJ&pg=PR4 }}</ref> [[Arthur F. Burns]] and [[Wesley C. Mitchell]] define business cycle as a form of fluctuation. In economic activities, a cycle of expansions happening, followed by recessions, contractions, and revivals. All of which combine to form the next cycle's expansion phase; this sequence of change is repeated but not periodic.<ref>Arthur F. Burns and Wesley C. Mitchell. (1946). (p.3). "Measuring Business Cycles."</ref> {{Further|Scarcity development cycle}}
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