Business Cycle

Business cycles, fluctuations in economic activity, have a variety of causes and implications for the global economy. We explore historical examples such as the Great Depression and the Global Financial Crisis. The chapter introduces theoretical frameworks, including Classical, Keynesian, and dynamic stochastic general equilibrium models, to explain cyclical patterns and their underlying mechanisms. It highlights the role of domestic and international factors, such as fiscal and monetary policies, financial markets, and global trade interdependencies, in shaping business cycle trajectories. The chapter also discusses stabilisation policies aimed at mitigating economic volatility, with examples like automatic stabilisation, countercyclical measures, and adoption of unconventional monetary tools during crises. Empirical tools, such as the HP filter, are presented for analysing trends and cycles in economic data. By connecting theory, policy, and historical evidence, the chapter provides insights into the nature of economic fluctuations and the strategies employed to address them in a global context.