Endogenous Models of the Economic Cycle
Endogenous means?
We will focus on four key concepts
1.
2.
3.
4.
The stock cycle
The multiplier process
The accelerator effect
The output gap and capacity utilisation
The Stock Cycle
Changes in stocks and the UK economic cycle
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
Real GDP Growth
4
4
Change in the value of stocks
£ (billions)
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
billions
Percent
Evidence for the stock cycle in the UK
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-6
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Source: Reuters EcoWin
The multiplier process
What does the multiplier process mean?
Example: Cyclical fluctuations in car manufacturing
United Kingdom Passenger Car Production
Number of
Monthly output figures, non-seasonally adjusted
130000
130000
120000
120000
110000
110000
100000
100000
90000
90000
80000
80000
70000
70000
60000
60000
50000
50000
40000
40000
30000
30000
20000
20000
10000
10000
0
0
01
02
03
Passenger cars, for home market
04
05
06
07
08
09
Passenger cars, for export
Source: Society of Motor Manufacturers and Traders
The Accelerator Effect
Economic Growth and Capital Investment
Annual % change in real GDP and real investment, 2009-10 forecast from OECD
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
Percent
20
-15
-15
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
United Kingdom, Real GDP, precentage change from previous period, Constant Prices
05
06
07
08
09
Capital Investment Spending
Source: Reuters EcoWin
Percentage of industrial firms working below capacity
Per cent of firms below capacity
CBI Industrial Trends Survey, quarterly data
80
80
75
75
70
70
65
65
60
60
55
55
50
50
45
45
40
40
35
35
30
30
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Source: CBI Manufacturing Survey
The Output Gap
1.3
1.2
1.2
1.1
1.1
1.0
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.6
0.6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
5
thousand billions
1.3
Percentage of potential GDP
at constant prices (thousand billions)
UK Real GDP and Output Gap
Output Gap measured as a % of potential GDP source: OECD
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
82
80
86
84
90
88
94
92
98
96
04
02
00
08
06
10
Source: Reuters EcoWin
The Output Gap and Unemployment in the UK
Output Gap, Unemployment - claimant count measure
10.0
10.0
Unemployment
7.5
7.5
5.0
5.0
Per cent
Output gap
2.5
2.5
0.0
0.0
-2.5
-2.5
-5.0
-5.0
-7.5
-7.5
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
Source: Reuters EcoWin