The
Limits of the| by Andrew Rowson, supervised by Prof. A.R.Champneys | ||
| Home A Dismal Science Economic TheoryClassical Neoclassical Keynesian Cycles and Crises Measuring cycles Economic Time Series Data Processing Spectral Analysis Cycle Modelling Kaldor's Trade Cycle A Kaldorian model Conclusion Full Report |
Cycles and Crises
Theories of the cycle According to Joseph Schumpeter cycles are simply the form that growth takes in a capitalist economy. Schumpeter identified the four phases of the economic cycle; prosperity, recession, depression and recovery.  Phases of the economic cycle Cyclical movements are a characteristic feature of many economic variables yet there has been little consensus when it comes to explaining the underlying causes. Competing theories can be broadly categorised into two groups, the exogenous or external 'shock-based' theories and endogenous explanations where the dynamics of the system are able to account for fluctuations. Classical theories explain cyclical behaviour as a series of 'crises' which temporarily disrupt the economy from its normal (equilibrium) path. Series of 'static' solutions are strung together to describe the dynamics of a system as they are believed to yield the same results. On the basis of this misunderstanding the motivation to study dynamics, which is generally going to be more difficult, disappears. Exogenous models of the business cycle are dismissed by Adolph Löwe on the basis that a theory of cycles should be based on a 'closed interdependent system'. Otherwise, he claimed, there was a danger of creating a paradox, namely a theory of economic cycles which relies on something else to explain the cycles! Those looking to develop endogenous cycle models have turned to nonlinear dynamical structures which offer more generality than their linear counterparts. Tönu Puu writes of his own research: "The author has finally come to the conclusion that linear dynamic modelling has very little to yield. This is due to the poor set of alternatives - decay or explosion of motion - pertinent to linear models." |
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