The business cycle is a generic term illustrating the fluctuations of an economy.
Several interpretations.
The simplest method is to represent the rises and falls in activity. These phenomena can be measured. This is what the NBER does in the United States, documenting the profile of American activity since the low point of December 1854. In France, a committee within the French Economic Association was created to construct a similar series. It begins with the peak of Q3 1974.
We want to have a theory of cycles to reduce uncertainty. If the cycle is regular, the activity profile becomes more predictable.
The literature highlights four main approaches.
The Kitchin cycle reflects the impact of stockpiling and destocking. It lasted from 3 to 5 years.
The Juglar cycle, reflecting capital investment, lasted from 7 to 11 years. Investment is generally the phenomenon that allows a country to emerge from a recession.
The Kuznets cycle, lasting 15 to 25 years, is based on infrastructure investment. The stimulus package championed by German Chancellor Friedrich Merz is driven by this idea.
The Kondratiev cycle, which lasts 45 to 60 years, is calibrated to technological cycles. AI can attest to the importance of this dimension.
All these elements are part of the cycle but they are not sufficient to understand the pace of the activity.
Central bank policy can create dynamics that stem not from pressures on goods prices but from pressures on asset prices. This obscures the interpretation. The Fed’s policy can illustrate this point in the face of the exuberance of the US stock market.
The credit cycle is characterized by a co-movement between credit development, associated leverage, and asset prices. It is a specific cycle that does not have the same frequency as the real cycle.
But what about the production chains for globalized products manufactured in Europe, China, Japan, and the United States? Each region has its own dynamics, altering the interpretation of an economy’s cycle.
More recently, the geopolitical dimension, which affects the expectations of economic actors, must be taken into account. American tariffs are one example.
The business cycle is a measure of economic fluctuations. It exists because the economy moves from expansion to contraction. However, it is irregular, resulting from all the influences and interactions mentioned above. Therefore, it cannot be characterized in a simple and deterministic way.
This is what makes it beautiful, challenging economists trying to disentangle and prioritize data, impulses, innovations, but also the political choices that result from industrial policy or geopolitics.
The cycle does not give up its secrets easily.
