end of the cycle?

Doug Henwood dhenwood at panix.com
Wed Jan 19 15:12:15 PST 2000


[Zarnowitz is a major guru of the bizcycle.]

"Theory and History Behind Business Cycles: Are the 1990s the

Onset of a Golden Age?"

BY: VICTOR ZARNOWITZ

FIBER, Inc.

Paper ID: NBER Working Paper No. 7010

Date: March 1999

Contact: VICTOR ZARNOWITZ

Email: Mailto:victor.zarnowitz at gsb.uchicago.edu

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ABSTRACT:

The disputes over the prospects for the current U.S. expansion

reopen the issue of the causes of business cycles. A recurrent

concern about the present is that expectations of business

profits and market returns may be outrunning the economy's

potential to deliver. The theory presented in this paper ties

together profits, investment, credit, stock prices, inflation

and interest rates. I discuss new estimates of profit and

investment functions with important roles for growth of demand

and productivity, price and cost levels, risk perception, credit

volume and credit difficulties. The relationships among these

endogenous variables are viewed as constituting an enduring core

of business cycles, the exogenous shocks and policy effects as

more transitory and peripheral. The U.S. upswing of the past

three years provides a vivid example of how profits, investment,

and an exuberant stock market can reinforce each other. Long

business expansions benefit society in several ways, but they

generate imbalances and are difficult to sustain. Recent events

in Asia demonstrate how investment-driven booms can give way to

a protracted stagnation with tendencies toward deflation and

underconsumption or to severe depressions. After a deterioration

in the 1970s and early 1980s, U.S. business cycles moderated

again, as in the first two post-WWII decades. But globally

recessions became more frequent and more severe in the second

half of the postwar era. The arguments in favor a new Golden Age

are generally not persuasive.

JEL Classification: E3, E30, E31, E32



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