Shocks in Global Economy: Impulse Model of Macroeconomic Cycle

Background

The global economy is becoming more and more integrated, facilitating the spread of crises, recession, uncertainty and risks. The worldwide economic system is undergoing a series of transformations that subject the future to considerable uncertainty, economic and financial chocks and unpredictability. The influence of the financial chocks and cyclical adaptation of the global economy like recession and recovery after the financial crises is of great interest. Hence, the turning points connected with shocks and the trajectory of the cyclical dynamics of the global economy are far from clear.

The often mentioned characteristics in the literature on cyclical development of the world economic system are instability (Hyman P. Minsky, 1986), shocks, uncertainty and risks.

Almost a century ago shocks as one of the above mentioned characteristics were investigated by E. Slutsky. From his point of view, the impulse (as a shock) made the economic system adapt to new circumstances within the cycle. The other authors developed Slutsky’s hypothesis of impulse model of cyclical economic development, highlighting shocks (impulses) as the main object of investigation.

The researches of Ragnar Frish (1933) were devoted to the business cycle transformed under the influence of impulses (shocks). The authors of this chapter have got some results that prove the possibility to treat shocks as starting point of the cyclical reaction of the global economy to their influence. This attitude is based on the conclusions of E. Slutsky and R. Frish.

Irma and Frank Adelman (1959) conducted an analytical study of impulse model of business cycle with the help of Klein-Goldberger model. Their impulse transmission approach is of great interest for the authors of this chapter.