Models of Business Cycles
- Business cycle models help organizations better predict future trends.graph with world map image by Attila Toro from Fotolia.com
Business cycles are repeatable changes in economic activity and production. A variety of business cycle models have been developed over the years. The models help organizations understand the business environment in which they are working the models help organizations better predict future trends. By predicting future trends, organizations can more effectively take advantage of emerging opportunities and counter emerging threats. - The Kitchin business cycle model was developed by Joseph Kitchin in the 1920s. This 40-month cycle is centered on activities related to time lags in the information that affects organizational decision-making. The Kitchen cycle surmises that when the business environment improves, an organization responds by increasing employment and production output. The market then becomes flooded, demand and prices drop and inventories go up. The Kitchin cycle theorizes that the time lag between this important signal for organizations to reduce output and the processing of this signal by the organization results in a glut of product. The same lag is found, according to this business cycle model, in the initiation signal that begins the ramp-up of production.
- The Juglar fixed investment cycle model was developed in 1862, by Clement Juglar. This decade-long cycle centers on the transferring of investment into fixed capital, in contrast to the Kitchin cycle model, which associates changes in employment levels and inventories. The Juglar fixed investment cycle has four phases: prosperity, followed by crisis, followed by liquidation, and ending with recession.
- The Kondratieff Wave business cycle model, also known as K-Wave or Supercycle, was developed by Nikolai Kondratieff in the early 20th century. This business cycle, according to the model, lasts about a half-century and consists of economic periods that alternate between high and low sectoral growth. This model is typically considered to be a part of heterodox economics or a part of alternative economic ideologies.
Kondratieff Waves are often divided into segments, for additional clarification of this long cycle. The growth period is sometimes known as Phase A, and the decline period is known as Phase B. The K-Wave is also sometimes divided into four "seasons." The Kondratieff spring is the period of improvement. Summer is the period of economic of acceleration. The recession phase of this business cycle is termed the Kondratieff fall. Lastly, the winter phase is the period of economic depression.
