Kitchin cycle
Encyclopedia
Kitchin cycle is a short business cycle
of about 40 months discovered in the 1920s by Joseph Kitchin
.
This cycle is believed to be accounted for by time lag
s in information
movements affecting the decision making of commercial firms. Firms react to the improvement of commercial situation through the increase in output through the full employment
of the extent fixed capital
assets. As a result, within a certain period of time (ranging between a few months and two years) the market gets ‘flooded’ with commodities whose quantity becomes gradually excessive. The demand declines, price
s drop, the produced commodities get accumulated in inventories, which informs entrepreneurs of the necessity to reduce output. However, this process takes some time. It takes some time for the information that the supply exceeds significantly the demand to get to the businessmen. Further it takes entrepreneur
s some time to check this information and to make the decision to reduce production, some time is also necessary to materialize this decision (these are the time lags that generate the Kitchin cycles). Another relevant time lag is the lag between the materialization of the above mentioned decision (causing the capital assets to work well below the level of their full employment) and the decrease of the excessive amounts of commodities accumulated in inventories. Yet, after this decrease takes place one can observe the conditions for a new phase of growth of demand
, prices, output, etc.
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...
of about 40 months discovered in the 1920s by Joseph Kitchin
Joseph Kitchin
Joseph Kitchin was a British businessman and statistician. Analysing American and English interest rates and other data, Kitchin found evidence for a short business cycle of about 40 months....
.
This cycle is believed to be accounted for by time lag
Lag
Lag is a common word meaning to fail to keep up or to fall behind. In real-time applications, the term is used when the application fails to respond in a timely fashion to inputs...
s in information
Information
Information in its most restricted technical sense is a message or collection of messages that consists of an ordered sequence of symbols, or it is the meaning that can be interpreted from such a message or collection of messages. Information can be recorded or transmitted. It can be recorded as...
movements affecting the decision making of commercial firms. Firms react to the improvement of commercial situation through the increase in output through the full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....
of the extent fixed capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
assets. As a result, within a certain period of time (ranging between a few months and two years) the market gets ‘flooded’ with commodities whose quantity becomes gradually excessive. The demand declines, price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
s drop, the produced commodities get accumulated in inventories, which informs entrepreneurs of the necessity to reduce output. However, this process takes some time. It takes some time for the information that the supply exceeds significantly the demand to get to the businessmen. Further it takes entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
s some time to check this information and to make the decision to reduce production, some time is also necessary to materialize this decision (these are the time lags that generate the Kitchin cycles). Another relevant time lag is the lag between the materialization of the above mentioned decision (causing the capital assets to work well below the level of their full employment) and the decrease of the excessive amounts of commodities accumulated in inventories. Yet, after this decrease takes place one can observe the conditions for a new phase of growth of demand
Demand
- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...
, prices, output, etc.