What Is Procyclic?

Procyclic describes a state where the behavior and actions of a measurable product or service move in tandem with the cyclical condition of the economy.

Understanding Procyclic

澳洲幸运5开奖号码历史查询:Economic indicators can have one of three different relationships to the economy: 澳洲幸运5开奖号码历史查询:Countercyclic𓂃 (indicator and economy move in opposite directions), acyclic (indicator has no relevance to the state of the economy), o𓄧r procyclic.

Procyclic refers to a condition of a 澳洲幸运5开奖号码历史查询:positive correlation between the value of a good, a service, or an economic indicator a𒀰nd the overal⛦l state of the economy. In other words, the value of the good, service, or indicator tends to move in the same direction as the economy, growing when the economy grows and declining when the economy declines.

Some examples of procyclic economic indicators are 澳洲幸运5开奖号码历史查询:gross domestic product (GDP), labor, and marginal cost. Most 澳洲幸运5开奖号码历史查询:consumer goods are also considered procyclic because consumers tend to bဣuy more discretiona🌠ry goods when the economy is in good shape.

Policies and fiscal behavior typically fall into procyclic patterns in periods of 澳洲幸运5开奖号码历史查询:boom and bust. When there is economic prosperity, many members of the population will engage in behavior that not only falls in line with that growth but serves to extend the per⛦iod.

Procyclic Example

In the lead up to the housing and 澳洲幸运5开奖号码历史查询:financial crisis of the late 2000s, there was a collective expectation for ongoing financial gain. Consumers engaged in more spending, borrowers sought mortgages for homes that might have been outside of their means to repay, financial institutions encouraged such behavior, and government policies did little to deter such trends. As long as the market collectively supported the “boom” nature and fed the economy, this continued until the bad debt and♉ other issues became t🐻oo great to ignore, and the markets collapsed.

The economic climate changed when the “bust” part of the cycle hit. Consumer spending dropped, banks and loan companies clamped down on their lending practices, 澳洲幸运5开奖号码历史查询:foreclosures spread ꧙across the market on homes with lapsed mortgages, and federal legislation was quickly drafted to prevent it all from happening again. These were all procyclic responses to the action at hand.

The further the economy mo🎐ves away from that crisis period, the more spending increases, and certain legislation that was deemed onerous by financial institutions might be questioned. Such behavior is procyclic because, unless there is some motivation to act differently, there is a desire to remove what would be seen as constraints on choice when the market seems prosperous.

The trouble with strictly procyclic reactions to the economy is they do not allow for forward-thinking behavior that would prepare the market for the declines that will eventually return. If preventative legislation i෴s only supported during times of crisis, in all likelihood, the behavior that contri𒅌buted to the collapse of the market will be repeated.