Is the Economic Cycle Still Alive? Theory, Evidence and Policies.

Black, Guy

This collection, consisting of four essays on "economic cycle fluctuations" and five on cyclical indicators and analysis, all by Italian authors, would appear to be addressed in part to non-specializing economists and to specialists in economic fluctuations as well. It is one of an extensive series on "Central Issues in Contemporary Economic Theory and Policy" under the general editorship of Professor Mario Baldassarri, professor of economics at the University of Rome, "La Sapienza." In the opening essay, Lippi describes his paper as "a fairly complete and elementary review of the problems raised in the debate on the relative importance of the permanent and transitory components in the explanation of economic fluctuations." The essay by Giuseppe Schlitzer of Banca d'Italia (Rome) on "The Real Business Cycle Theory" is similarly tutorial, tracing developments from the work of Robert J. Barro and Robert E. Lucas, Jr., of Harvard and University of Chicago respectively. The thrust of the theoretical developments of which these men are proponents and mainstays (by no means the only ones) is analysis of business cycles and economic growth as interactive phenomenon within a general equilibrium framework.

In an elaborately illustrated essay, Stefano Fachin and co-authors present a decomposition of permanent and transitory components of output variability in four European countries, as it is impacted by supply, technology and demand shocks. Their choice of methodology is explained in a useful and well-organized comparative evaluation recent similar efforts.

Cyclical indicators are given extensive treatment, starting with a comprehensive review by Paolo Annunziato of the historical development and present status of indicators, with due regard to views on their purposes and usefulness. Ronny Nilsson tackles the problem of applying the OECD indicator system to central and eastern European countries, after a concise presentation of the OECD system, and two essays by Enrico Giovannini and Pietro Gennari respectively deal with short-run forecasting particularly for the Italian economy.

A short concluding essay on "The Death and Rebirth of the Business Cycle" by Innocenzo Cipolletta reviews the history of and various attitudes toward the idea of a business cycle. He reiterates a theme found in other of these essays, concluding that "... the business cycle is still with us, but should be seen as the deviation of a random walk trend due to continuous shocks of a stochastic nature" [p. 288] and that "... it is unarguable that cyclical fluctuations have lost that 'irregular regularity' so dear to Schumpeter and those who studied the business cycle as an independent phenomenon and not merely as an economies capacity to fluctuate" [p. 293].

All told, this is a reader-friendly collection that can be read profitably by those who have not followed developments in business cycle theory closely. The Essays on sources of fluctuation in the Italian economy and the multi-country analysis of the permanent component of output by Stefano Fachin, et al. will be of most interest to the specialist. This book's mathematics is neither demanding or essential. That is not to declare it the reading of choice for those wishing an update on recent work on economic fluctuations. Barro [1] or - more briefly - a recent "Symposium on Keynesian Economics Today" [2] might be preferred.

Guy Black The George Washington University, Emeritus

References

1. Barro, Robert J., ed. Modern Business Cycle Theory. Cambridge, Mass.: Harvard University Press, 1989.

2. Mankiw, N. Gregory, et al., "Symposium on Keynesian Economics Today." The Journal of Economic Perspectives, Winter 1993, 3-82.