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Business Cycles

In: Maritime Economics

Author

Listed:
  • Elias Karakitsos

    (University of Cambridge)

  • Lambros Varnavides

    (Royal Bank of Scotland)

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.

Suggested Citation

  • Elias Karakitsos & Lambros Varnavides, 2014. "Business Cycles," Palgrave Macmillan Books, in: Maritime Economics, chapter 5, pages 153-208, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-38341-9_5
    DOI: 10.1057/9781137383419_5
    as

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