Business Cycles

Elias Karakitsos and Lambros Varnavides
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Elias Karakitsos: University of Cambridge
Lambros Varnavides: Royal Bank of Scotland

Chapter 5 in Maritime Economics, 2014, pp 153-208 from Palgrave Macmillan

Abstract: Abstract From a statistical point of view fluctuations in economic activity, called business cycles, are generated by random shocks, such as abrupt and sustained oil price changes or productivity improvements. These shocks can be either transitory or permanent. If all shocks are transitory then business cycles can be decomposed into a trend and a cycle. Transitory shocks give rise to fluctuations around the trend. In the absence of such shocks the economy would be growing on the stable path of the trend, which is also called potential output. The path of potential output may not necessarily be linear; it could be cyclical. The shocks cause a transient, but persistent, deviation from potential output. Business cycles are somewhat predictable and there is room for stabilisation policies, as any deviation from potential output results in economic inefficiencies.

Keywords: Interest Rate; Monetary Policy; Business Cycle; Central Bank; Fiscal Policy (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-38341-9_5

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DOI: 10.1057/9781137383419_5

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