On the accurate characterization of business cycles in nonlinear dynamic financial and economic systems

TL;DR

This paper investigates how nonlinear interactions in financial and economic systems affect the accurate characterization of business cycles, which is crucial for decision-making by financial institutions.

Contribution

It introduces a framework for analyzing linear and nonlinear interactions in business cycles within nonlinear dynamic financial and economic systems.

Findings

Nonlinear effects can cause deviations in business cycle parameters.

Identification of key nonlinear phenomena affecting economic cycles.

Highlights importance of considering nonlinear interactions for accurate cycle analysis.

Abstract

The accurate characterization of the business cycles in the nonlinear dynamic financial and economic systems in the time of globalization represents a formidable research problem. The central banks and other financial institutions make their decisions on the minimum capital requirements, countercyclical capital buffer allocation and capital investments, going from the precise data on the business cycles. We consider the two possible interaction scenarios, when there are: the linear interactions, and the non-linear interactions. In our opinion, the main parameters of the business cycle may deviate during the business cycle nonlinear interaction with the nonlinear dynamic financial and economic systems, because of the origination of the nonlinear effects such as the Four Waves Mixing (FWM), Stimulated Brillouin Scattering (SBS), Stimulated Raman Scattering (SRS), Carrier Induced Phase Modulation.