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MBA-CM - ME - Lecture 8 Business Cycles
MBA-CM - ME - Lecture 8 Business Cycles
NMIMS University
Dipankar De
Mumbai, August 2007
1
Business Cycles
• Given the linkages in the economy, some variables must turn down before
others. To identify those series that consistently change well in advance of
changes in the major measures of any economic activity - leading indicator is
used.
• List of leading indicators for any particular variable is not constant overtime – few
may act as co-incident or lagging indicator over a period of time; also lead time
may undergo changes
Business respond
Consumers cut down by producing less + Lowers personal incomes
on spending cutting jobs
COINCIDENT INDICATORS
3
Predicting Business Cycles
Might indicate
Fall in New Orders Fall in production soon Future Downturn in
production
LEADING INDICATORS
4
Business Cycles
• A broad spectrum of indicators are needed to represent the various drivers of the
economic cycle. The risk of falsely predicting a cyclical turn can be minimized only
by collecting diverse indicators in Composite Indexes
• Business cycles are common to all modern economies, but their frequency, timing
& severity differ across countries