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Three Simple Techniques to Analyze a Complex Economic Phenomenon: The Case of Profits

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  • John Silvia
  • Azhar Iqbal

Abstract

This paper seeks to characterize the behavior of profits over the business cycle as a model for analyzing any economic series by a practicing business economist. It addresses three fundamental questions about profits that are common and critical to identifying the behavior of any macroeconomic series—mean-reversion, volatility, and trend. First, does profit growth over time exhibit mean-reverting behavior? Second, how volatile are profits, and does this volatility obscure the message of average profit growth? Third, how can we estimate a long-run trend growth component for profits and thereby separate profit cycles from its long-run trend growth component?

Suggested Citation

  • John Silvia & Azhar Iqbal, 2010. "Three Simple Techniques to Analyze a Complex Economic Phenomenon: The Case of Profits," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 45(2), pages 116-125, April.
    • Handle: RePEc:pal:buseco:v:45:y:2010:i:2:p:116-125
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