Predicting returns over several decades

2021 ◽  
pp. 292-312
Author(s):  
Jesper Rangvid
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Interest Rates ◽  
Stock Price ◽  
Turning Points ◽  
Long Run ◽  
The Business Cycle

This chapter looks at expectations of returns several decades out. This is obviously a difficult task, as fundamental economic structures might change over such long periods. But we need multi-decade forecasts in certain situations. One conclusion of this chapter is that we must look beyond variables that predict turning points in the business cycle and stock-price multiples when dealing with the very long run. Over multiple decades, we will live through multiple business cycles. Variables that predict the next business cycle will not be particularly informative about the returns we expect over many decades. The chapter focuses on the deep underlying drivers of long-run returns, primarily expectations to long-run economic activity.The chapter also looks at expected long-run interest rates.

A Long View of the UK Business Cycle

2002 ◽  
Vol 182 ◽  
pp. 72-89 ◽  
Author(s):  
Jagjit S. Chadha ◽  
Charles Nolan
Keyword(s):  
Business Cycle ◽  
Interest Rates ◽  
Dominant Role ◽  
Real Wages ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Short Run ◽  
The Business Cycle ◽  
The Uk ◽  
External Sector

We outline a number of ‘stylised’ facts on the UK business cycle obtained from analysis of the long-run UK annual dataset. The findings are to some extent standard. Consumption and investment are pro-cyclical, with productivity playing a dominant role in explaining business cycle fluctuations at all horizons. Money neutrality obtains over the long run but there is clear evidence of non-neutrality over the short run, particularly at the business cycle frequencies. Business cycle relationships with the external sector via the real exchange rate and current account are notable. Postwar, the price level is counter-cyclical and real wages are pro-cyclical, as are nominal interest rates. Modern general equilibrium macroeconomic models capture many of these patterns.

scholarly journals Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

2020 ◽  
Author(s):  
Richmond Sam Quarm ◽  
Mohamed Osman Elamin Busharads
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Interest Rates ◽  
Money Supply ◽  
Macroeconomic Policy ◽  
Output Growth ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

Dating business cycles in India

2017 ◽  
Vol 10 (1) ◽  
pp. 32-61 ◽  
Author(s):  
Radhika Pandey ◽  
Ila Patnaik ◽  
Ajay Shah
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Turning Points ◽  
Growth Cycle ◽  
Macroeconomic Shocks ◽  
Content Type ◽  
Reform Period ◽  
Cyclical Component ◽  
Policy Work ◽  
The Business Cycle

Purpose This paper aims to present a chronology of Indian business cycles in the post-reform period. In India, earlier, macroeconomic shocks were about droughts and oil prices. Economic reforms have led to an interplay of a market economy, financial globalisation and decisions of private firms to undertake investment and hold inventory. This has changed the working of the business cycle and has raised concerns about business-cycle stabilisation. In the backdrop of these developments, the macroeconomics research agenda requires foundations of measurement about business-cycle phenomena. One element of this is the identification of dates of business-cycle turning points. Design/methodology/approach This paper uses the growth-cycle approach to present the chronology of business cycles. The paper uses the Christiano–Fitzgerald (CF) filter to extract the cyclical component and shows the robustness of the findings to the contemporary methods of cycle extraction. It then applies the Bry–Boschan algorithm to identify the dates of peaks and troughs. Findings The paper finds three periods of recession. The first recession was from 1999-Q4 to 2003-Q1; the second recession was from 2007-Q2 to 2009-Q3; and the third recession ran from 2011-Q2 till 2012-Q4. These results are robust to the choice of filter and to the choice of the business-cycle indicator. These dates suggest that, on average, expansions in India are 12 quarters in length and recessions run for 9 quarters. The paper offers evidence of change in the nature of cycles. Originality/value Dates of business-cycle turning points are a critical input for academic and policy work in macroeconomics. The paper offers robust estimation of the business-cycle turning points in the post-reform period using contemporary techniques of cycle extraction. This work helps lay the foundations for downstream macroeconomics research by academicians and policymakers.

The stock market over the business cycle

2021 ◽  
pp. 126-141
Author(s):  
Jesper Rangvid
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Business Cycle ◽  
Interest Rates ◽  
Stock Prices ◽  
Stock Price ◽  
Academic Research ◽  
Central Banks ◽  
Discount Rates ◽  
The Business Cycle

This chapter describes how the stock market relates to the business cycle. Stocks do badly during recessions and excellently during expansions. Earnings of firms drop during recessions. Stock prices drop as well, whereas dividends do not. This means that the stock-price dividend multiple contracts during recessions. If stock prices drop by more than dividends, it must be because investors have increased their expectations of future discount rates and/or lowered their expectations to future dividend/earnings growth. The chapter discusses the academic research on this issue. The chapter also shows that bonds do better than stocks during recessions. This has not least to do with the fact that central banks lower the monetary policy rate during recessions.Lower interest rates lead to higher bond prices, causing bonds to perform well during recessions.

Development blocks, malinvestment and structural tensions – the Åkerman–Dahmén theory of the business cycle

2010 ◽  
Vol 7 (1) ◽  
pp. 105-129 ◽  
Author(s):  
LENNART ERIXON
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Institutional Theory ◽  
Financial Market ◽  
Turning Points ◽  
Optimization Models ◽  
Market Conditions ◽  
Modern Business ◽  
The Business Cycle

Abstract:Johan Åkerman and Erik Dahmén's institutional theory of economic fluctuations is a constructive alternative to traditional macroeconomic approaches and also to modern business-cycle analysis based on microeconomic optimization models. By its integration of a business-cycle and growth perspective, Åkerman and Dahmén's analysis was similar to that of Schumpeter in Business Cycles. But their notions of malinvestment, structural tensions, and development blocks provided an original explanation of the turning points in the business cycle. The Åkerman–Dahmén approach is more valid for innovation-driven cycles such as the ICT boom in the late 1990s and the subsequent crisis than for cycles with an independent role of financial-market conditions.

scholarly journals The Determinant Factors on The Movement of Sharia stock in Indonesia

2020 ◽  
Vol 5 (1) ◽  
pp. 60
Author(s):  
Rachmania Nurul Fitri Amijaya ◽  
Mohammad Yusron Sholikhin ◽  
Azizah Esti Pratiwi
Keyword(s):  
Business Cycle ◽  
Interest Rates ◽  
Global Economy ◽  
Quantitative Methods ◽  
Time Series Data ◽  
Negative Relationship ◽  
Series Data ◽  
Determinant Factors ◽  
Long Run ◽  
The Business Cycle

This study aims to examine the determinant factors that influence Islamic stocks, JII. The development of the global economy will have an impact on economic turnover in Indonesia. This condition leads to sharing prices will be affected by the global economy. Strengthening in various sectors is needed so that JII stability can be maintained. This study uses quantitative methods with the Vector Error Correction Model (VECM) analysis which can determine the factors that influence the Jakarta Islamic Index (JII) in the long run. The time-series data used is monthly data from January 2011 to December 2018. The result of this research presents the macroeconomic variables affect JII in the long run. This has implications for JII stability depending on the exchange rate of the rupiah against the US dollar, the business cycle, inflation, economic growth, and interest rates. Exchange rates and business cycles have a negative relationship with JII. Meanwhile, interest rates, CPI and IPI have a positive relationship with JII. This research shows the macroeconomic factors from the business-cycle, which can be taken to be determined. It seems that this study might be a suggestion for investors in making wise decisions in investing. Furthermore, the government plays a very important role in maintaining the stability of Islamic stocks and the factors that influence them. In addition, strengthening monetary policy is needed due to the stock movements cannot be separated from the policy.

scholarly journals Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

2020 ◽  
Vol 3 (4) ◽  
Author(s):  
Sakil Ahmmed ◽  
◽  
Jonaed Jonaed
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Interest Rates ◽  
Money Supply ◽  
Macroeconomic Policy ◽  
Output Growth ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

scholarly journals Statistical analysis of business cycle fluctuations in Poland before and after the crisis

Equilibrium ◽  
2016 ◽  
Vol 11 (4) ◽  
pp. 769 ◽  
Author(s):  
Łukasz Lenart ◽  
Błażej Mazur ◽  
Mateusz Pipień
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Bayesian Methods ◽  
Inference Method ◽  
Statistical Tools ◽  
Business Cycle Fluctuations ◽  
Long Run ◽  
Before And After ◽  
The Business Cycle ◽  
Polish Economy

The main objective of the paper is to investigate properties of business cycles in the Polish economy before and after the recent crisis. The essential issue addressed here is whether there is statistical evidence that the recent crisis has affected the properties of the business cycle fluctuations. In order to improve robustness of the results, we do not confine ourselves to any single inference method, but instead use different groups of statistical tools, including non-parametric methods based on subsampling and parametric Bayesian methods. We examine monthly series of industrial production (from January 1995 till December 2014), considering the properties of cycles in growth rates and in deviations from long-run trend. Empirical analysis is based on the sequence of expanding-window samples, with the shortest sample ending in December 2006. The main finding is that the two frequencies driving business cycle fluctuations in Poland correspond to cycles with periods of 2 and 3.5 years, and (perhaps surprisingly) the result holds both before and after the crisis. We, therefore, find no support for the claim that features (in particular frequencies) that characterize Polish business cycle fluctuations have changed after the recent crisis. The conclusion is unanimously supported by various statistical methods that are used in the paper, however, it is based on relatively short series of the data currently available.

Business Cycles and Turning Points: A Survey of Statistical Techniques

2003 ◽  
Vol 183 ◽  
pp. 90-106 ◽  
Author(s):  
Michael Massmann ◽  
James Mitchell ◽  
Martin Weale
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Turning Points ◽  
Statistical Techniques ◽  
The Business Cycle ◽  
The Uk

The business cycle has an importance in the popular debate which can tend to run ahead of the problems in measuring it. This paper provides a survey of the main statistical techniques that are used to measure the cycle. An application to the UK illustrates that the choice of what measure, or measures, to use is more than a dry academic issue. Inference about the business cycle is potentially sensitive to measurement. Fortunately, however, there is an element of consensus.

EXPANSIONS AND RECESSIONS IN THE MEXICAN STATES: A CLASSICAL BUSINESS CYCLES APPROACH

2017 ◽  
Vol 3 (5) ◽  
pp. 32
Author(s):  
Pablo Mejía-Reyes
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Monthly Basis ◽  
Production Index ◽  
Clear Cut ◽  
Output Measure ◽  
Central Regions ◽  
The Business Cycle ◽  
National Business ◽  
Cycle Indicator

This paper aims to document expansions and recessions characteristics for 17 states of Mexico over the period 1993-2006 by using a classical business cycle approach. We use the manufacturing production index for each state as the business cycle indicator since it is the only output measure available on a monthly basis. According to this approach, we analyse asymmetries in mean, volatility and duration as well as synchronisation over the business cycle regimes (expansions and recessions) for each case. Our results indicate that recessions are less persistent and more volatile (in general) than expansions in most Mexican states; yet, there is no clear cut evidence on mean asymmetries. In turn, there seems to be strong links between the business cycle regimes within the Northern and Central regions of the country and between states with similar industrialisation patterns, although it is difficult to claim that a national business cycle exists.

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