Kitchin cycle is a short

business cycle Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examin ...

of about 40 months discovered in the 1920s by Joseph Kitchin. This cycle is believed to be accounted for by time lags in

information Information is an abstract concept that refers to that which has the power to inform. At the most fundamental level information pertains to the interpretation of that which may be sensed. Any natural process that is not completely random ...

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 extant 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 A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...

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 supply significantly exceeds demand to get to the business people. As it takes

entrepreneur Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values t ...

s time to check this information and to make the decision to reduce production, 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 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 In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...

, prices, output, etc. For example, the volume of oil production on tight oil formations in the US depends significantly on the dynamics of the WTI oil price. About six months after the price change, drilling activity changes, and with it the volume of production. These changes and their expectations are so significant that they themselves affect the

price of oil The price of oil, or the oil price, generally refers to the spot price of a barrel () of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC ...

and hence the volume of production in the future. These regularities are described in mathematical language by a differential extraction equation.

References

{{Reflist Business cycle theories

See also

References