Full text: Trend and Cycle

purposes instability can only mean that the system is unable to 
cope with them adequately. 
A necessary condition for macroeconomic change - trend or cycle - 
is that the disturbances and the corresponding reactions in the 
small do not offset each other so as to permit stability of the 
whole system but rather tend to go to a large extent in the same 
direction. They are unlike a self regulating system either because 
the individual movements reinforce each other (imitation) or 
because they all respond to a common signal,for example, the rate 
of interest. 
In my opinion trend and cycle are to be treated from the point of 
view of the following ’’research program*' (in the sense of 
Lakatos): The macroeconomic system is like a machine which works 
up and transforms the disturbances which are fed into it from the 
outside in the course of time.; This approach is dictated by a 
dominating practical interest in economic policy: We want to know 
how the system reacts to various measures or events and how the 
daily or monthly movements of the Konjunktur (state or tendency of 
trade) have come about in each concrete case. This preoccupation 
with the practical aims of the theory are the reason why I can not 
be convinced by Goodwins insistence on a non-linear treatment of 
the cycle. The response of the system to disturbances is, I hope, 
adequately dealt with by linear approximations. This’^jjJs* true also 
for the long term developments whipji is qnly^ JLhe^resuLt^ -oT an— 
n»&^»au 1 jitij&n 'of~~stror-t terfinchanges . 
This leads to the question of the unity of trend and 
cycle . Unf ortunately very of ten indepenHerTf and 'separate theories 
KSv'g*' been produced for the one and the other even by those authors 
who intended to arrive at a unified theory. The failure stems 
probably from the mathematical formulation which is so much easier 
if you have one equation for each,independent of each other. But 
in reality the trend component and the cyclical component are 
determined at the same time and are parts of the same process, 
separated only artificially by statistical or analytic exogenous 
and endogenous elements in the determination of the t r end .s~ 
^combTnati^n sfebniS to me “essential—fT5T~the—f-xstT-oWtf^^lreason: It is 
accepted that innovations stimulate growth, but it is not easy to 
believe that these exogenous technological factors would in 
themselves explain the rate of growth.The speed with which the 
economic consequences of an innovation work out could hardly be 
determined by the innovation as such or by mere technological 
facts; it is plausible that it should be affected by the general 
economic conditions such as for example availability of finance,of 
management, skills, of excess capacity in traditional 
industries,of the climate of business expectations etc. I am not 
able to"formalize this but I shall try to throw out a hint in this 
direction. Supposing we could put an estimate on the total gross 
investment potential which would be directly and indirectly called 
forth in the course of time by a certain innovation. We could 
imagine that this potential is gradually worked off in accordance 
with an exponential function R = Roe"'*.The speed with which the 
exogenous stimulus is used up (given by r ) depends on endogenous 
On* 7 ”, 

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