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NOTE

Business Cycles

English translation of the original VNote “Business Cycles”, preserving its structure with only necessary small corrections.

EconomicsUpdated 1 min readhistorical

This is a historical learning note and may contain outdated or incomplete understanding.

Note: This preserves the original VNote structure and wording as much as possible. Only clear errors or statistical/institutional definitions that have changed are corrected.

1. What Is a Business Cycle?

National income grows over the long run, but in the short run it shows cyclical upward and downward fluctuations. In the short run, GDP growth fluctuates around its natural growth rate. When it is high, the economy may be described as overheating; when it is low, the economy may be described as in recession.

2. Types of Business Cycles

  • Kitchin cycle: 3 to 5 years
  • Juglar cycle: 7 to 11 years
  • Kuznets infrastructure-investment cycle: 15 to 25 years
  • Kondratiev long wave: 45 to 60 years

3. Stages of the Business Cycle

  • Recession, recovery, overheating, stagflation

3.1. Merrill Lynch Investment Clock

The Merrill Lynch Investment Clock maps different economic stages to different asset classes.

  1. Recession: bonds and cash
  2. Recovery: stocks and bonds
  3. Overheating: commodities and stocks
  4. Stagflation: cash and commodities The original note also observes that policy intervention may weaken the model’s fit in China.

3.2. MVP

A variation of the investment clock: M = macro, V = valuation, P = policy.

  1. Macro: identify the business-cycle stage
  2. Policy: focus mainly on monetary policy
  3. Valuation: compare stock-market valuation with history and compare stocks with bonds

4. How to Judge the Business Cycle

Combine monetary policy and fiscal policy. Monetary Policy Fiscal Policy