Abstract
This chapter provides a short review of theories of the economic cycle and how they developed. It focuses on some of the key concepts and ideas from the vast literature on the subject. It discusses the difference between classical business cycles—that are viewed primarily as expansions and contractions in the level of activity—and growth cycles that require the data to be de-trended for analysis. The emphasis is on theories of the business cycle but many of these theories highlight the importance of monetary and financial factors as both impulses and propagators of the cycle. A summary of the key impulses and propagation mechanisms suggested by different theories is provided.
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- 1.
Ashton (1959, p. 2).
- 2.
Often the fall in the money supply is attributed to a fall in the monetary base mentioned in Friedman’s (1968) presidential address. Although there was a fall in the monetary base in 1928–1930, the large fall of 33% in M2 between 1930 and 1933 is mainly due to a fall in deposits relative to commercial bank reserves. For a discussion of this see Nelson (2018).
- 3.
Oil/import price increases will lower oil/imported inputs which will cause gross output to fall if there is some substitutability between oil and other factor inputs.
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Dimsdale, N., Thomas, R. (2019). Business, Monetary and Credit Cycles in Theory. In: UK Business and Financial Cycles Since 1660. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-26346-1_2
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