A “family of cycles” – major and auxiliary business cycles
| DOI | https://doi.org/10.1108/JPIF-02-2014-0015 |
| Published date | 01 April 2014 |
| Pages | 306-323 |
| Date | 01 April 2014 |
| Author | Arvydas Jadevicius,Simon Huston |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
EDUCATION BRIEFING
A “family of cycles” – major
and auxiliary business cycles
Arvydas Jadevicius and Simon Huston
School of Real Estate and Land Management,
The Royal Agricultural University, Cirencester, UK
Abstract
Purpose – The paper aims to discuss the major and auxiliary types of cycles found in the literature.
Design/methodology/approach – The existence of cycles within economy and its sub-sectors has
been studied for a number of years. In the wake of the recent cyclical downturn, interest in cycles has
increased. To mitigate future risks, scholars and investors seek new insights for abetter understanding
of the cyclical phenomenon. The paper presents systematic review of the existing copious cyclical
literature. It then discusses general characteristics and the key forces that produce these cycles.
Findings – The study finds four major and eight auxiliary cycles. It suggests that each cycle has its
own distinct empirical periodicity and theoretical underpinnings. The longer the cycles are the greater
controversy which surrounds them.
Practical implications – Cycles are monumental to a proper understanding of complex property
market dynamics. Their existence implies that economies, whilst not deterministic, have a rhythm.
Cyclical awareness can therefore advance property market participants.
Originality/value – The paper uncovers four major and eight auxiliary types of cycles and argues
their importance.
Keywords Review, Business,Literature, Cycle
Paper type Literature review
Introduction
The notion that property market is cyclical has existed for a number of years (Mangoldt,
1907; Hoyt, 1933; Barras, 2009; Grover and Grover, 2013, 2014). Barras (2009, p. 4) noted
that after the Great Depression, academics and property professionals sought to prevent
the recurrence of such dramatic events in the future. As such, they began to focus their
attention on investment and building, as the most volatile element of the aggregate
economy.
Grover and Grover (2013) commented on the issue as to whether cycles are generated
from their exogenous shocks or endogenous causes, highlighting the distinction
between “oscillations” and “cycles”. Whilst appearance is similar, different mechanisms
drive these distinct phenomena. In cycles, the motor is endogenous, whilst exogenous
shocks drive oscillations. The distinction is not merely academic but has profound
policy implications. According to the commentators, in both cases, whether endogenous
or exogenous forces, policy makes should be searching for ways in addressing cycles.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
An initial version of this paper was presented at the XI BSV International Conference on
Valuation and Investment, Minsk, Belarus. The authors would like to thank two anonymous
referees for their valuable comments and constructive suggestions. Full responsibility for any
errors rests with the authors.
Journal of Property Investment &
Finance
Vol. 32 No. 3, 2014
pp. 306-323
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-02-2014-0015
JPIF
32,3
306
However, controversy surrounds the ontology and significance of business and
property cycles. Cyclical gainsayers deny the ir very existence whilst cyclical
protagonists affirm it and stress their importance. On the one hand, Pyhrr et al. (1999)
contend that they are a major determinant of success or failure. On the other, Zarnowitz
(1992), Solomou (1998) and Dudukovic (2007) relegate them to sequence of irregular
fluctuations. According to Reiter and Woitek (1999), classical economists such as Moore
(1914) and Kitchin (1923) saw business fluctuations as genuine cycles, i.e. recurrent
phenomenon with typical characterist ics. Conversely, modern macroeconomis ts
including Zarnowitz (1992), Solomou (1998) and Dudukovic (2007) identify business
cycles as a sequence of irregular fluctuations with no cyclical pattern. Dudukovic (2007)
argues the term “cycle” is rather misleading, whereas business fluctuations do not tend
to repeat at the regular time periods. As her evidences suggest, the length of business
cycles, measured either from peak to peak, or trough to trough, can vary substantially,
implying that cycles are not mechanical in their regularity. Maddison (1991) and
Solomou (1998) expressed similar views by stating that the average duration and other
defining features of the business cycles have apparently changed over time. In the UK,
these features changed notably after the 1970s, compared with the “golden age” between
the 1950s and 1960s. Consequently, this variance of views and facts led
macroeconomists, including Solomou (1998) and de Groot (2006), to hypothesise that
over the years various types of cycles have been developed.
Given this contention and its serious implications for ordinary people (Grover and
Grover, 2013), the current paper conducts a systematic review of the literature
concerning business fluctuations. The purpose of the study is to explore the mechanics
and rationale behind cycles and determine their relevance to modern researchers and
analysts. A greater awareness of various types of cycles could be useful for both the
private and public sector in examining economic issues. The existence of
business cycles implies that economy has its rhythm and dynamic behavi our.
Analysts, who can recognise short and long business cycles and determine their
repetitive nature, are well positioned to anticipate changes in the economy (Sichel,
1991; Diebold et al., 1993; de Groot, 2006). As Diebold et al. (1993, p. 255) suggested, the
understanding business cycle duration may furnish vital insights “on important and
long-standing questions in macroeconomics”. Following Pyhrr et al. (1999), real estate
cycles do have strategic implications for investors and portfolio managers in the global
economy.
The paper is organised as follows. The next section reviews four major business
cycles, thereafter eight auxiliary cycles found in the literature, are reviewed. The
concluding remarks summarise the discussion and present key findings.
Major cycles
The systematic literature review on the subject indicates the existence of four major
types of cycles (Su, 1996; Solomou, 1998; Reiter and Woitek, 1999; de Groot, 2006;
Dudukovic, 2007; Barras, 2009; Grover and Grover, 2013) (Figure 1):
(1) three to four years cycles (Kitchin cycle), which are related to changes in
inventory investment;
(2) seven to ten years cycles ( Juglar cycle), related to changes in equipment
investment;
Major and
auxiliary
business cycles
307
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