An Alternative Vision of the Stochastic Element in Business Cycles

Abstract

Stochastic shocks do not essentially influence the long-term economic development. This is an accomplished fact in current growth theories (of Solow and Lucas, for instance). But ever since an important paper of the Russian mathematician Eugen Slutsky from the year 1927 was translated and published in English in a completed form (Slutsky, 1937), the economists have been fascinated by the idea that the business cycles may be purely stochastic processes. This would surely account for the ragged outlook of most economic time series. What Slutsky showed, however, was something more, viz. that random series are capable of forming cyclic phenomena. In fact this follows already from the symmetry of the Gauss curve around the mean of the series, and the effect can be made more visible by summations of certain sequences in a random series.