What causes business cycles? A look at Haberler (1964) shows that all kinds of theories had already been advanced by the end of the 1950s. In recent years, macroeconomists had been so confident of their skillful policy management as to hail it as the “Great Moderation”. Lucas Jr. (2003), in his presidential address to the meeting of the American Economic Association, declared:

Ironically, when Lucas delivered this address, the American economy had been on a steady road to the worst post-war recession, perhaps even depression. Business cycles are still with us and await further investigation.

Describing the characteristics of business cycles has been one of the most difficult problems in the study of economies because of the presence of various economic shocks. In this chapter, we analyze the characteristics of business cycles more directly than in the standard approach using a method motivated by physics. First, we identify the causes of business cycles using the random matrix theory and principal component analysis.

We then identify evidence of synchronization in Japanese business cycles and the international business cycle. Finally, we discuss the mechanism of this synchronization using the coupled limit-cycle oscillator model.

What Causes Business Cycles

Business cycles are defined as a type of uctuation in the aggregate economic activity of nations that organize their work mainly around business enterprises. A cycle consists of expansions occurring at roughly the same time in many economic activities, followed by similar general recessions, contractions, and revivals that merge into the expansion phase of the next cycle; it is a sequence of change that is recurrent but not periodic.