Shocks in Global Economy: Impulse Model of Macroeconomic Cycle

Shocks in Global Economy: Impulse Model of Macroeconomic Cycle

Andrey Pilipenko (Peoples' Friendship University of Russia, Russia) and Zoya Pilipenko (Bank of Russia, Russia)
Copyright: © 2018 |Pages: 19
DOI: 10.4018/978-1-5225-4026-7.ch012

Abstract

This chapter represents an attempt to analyze the role of shocks (impulses) in business cycles in the world economy in connection with the global financial crises of the late 2000s. The theoretical explanation of the origin of any economic shock (external impulse), of economic systems' reaction to it, as well as of the way the global shocks spread its influence all over the world suggests that the analytical predictions of E. Slutsky and R. Frish can be correct. The results provide some evidence for the hypothesis that the cyclical model of development of any economic system means its adjustment to new conditions caused by external impulses (shocks). To reinforce the findings, some results associated with other theoretical investigations and analytical researches are presented.
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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.

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