Cyclical variation in time series analysis, Financial Management

Cyclical Variation

By cyclical variations, we refer to the long-term movement of the variable about the trend line. Therefore, does the movement of the actual series about a trend line observed in figure (1) suggest a pattern of cyclical variation? Yes, it does. A more appropriate example of cyclical variation would be the pattern of business cycle. The whole cycle encompassing the phenomena of the business activity reaching a high, its gradual slow down, a depression and then the recovery can be observed. But one of the points to which we have to pay attention is that the business and the economic cycles may not be periodic in nature. That is, in two different business cycles, at equal intervals of time, the pattern observed may be different.

Generally, the behavior of the variable is considered to be cyclic, only if the movements recur after a period of more than one year. The cyclical variation is shown in the figure.

Figure 

1579_cyclical variation.png

In the figure, we observe the component of the time series moving towards and away from the secular trend.

Posted Date: 9/17/2012 3:28:47 AM | Location : United States







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