Kitchin Cycles

Kitchin cycles are short-term economic cycles with a characteristic period of 2-4 years, discovered in the 1920s by the English economist Joseph Kitchin ^[1] . Joseph himself explained the existence of short-term cycles by fluctuations in world gold reserves ^[2] , but in our time this explanation cannot be considered satisfactory. In modern economic theory, the mechanism for generating these cycles is usually associated with time delays (time lags) in the movement of information that affect decision-making by commercial firms.

Firms react to the improvement of market conditions by full capacity utilization, the market is flooded with goods, after some time excessive stocks of goods are formed in warehouses, after which a decision is made to reduce capacity utilization, but with a certain delay, since information on excess of supply over demand usually arrives with a certain delay, in addition, it takes time to verify this information; a certain time is required to make and approve the decision itself. In addition, there is a certain delay between the decision and the actual decrease in capacity utilization (it also takes time to implement the decision). Finally, another time lag exists between the moment of the beginning of the decline in the level of capacity utilization and the actual absorption of excess stocks of goods in warehouses. In contrast to Kitchin’s cycles, within the framework of the Juglar cycles, we observe fluctuations not only in the level of utilization of existing production capacities (and, accordingly, in the volume of inventories), but also fluctuations in the volume of investments in fixed assets ^[3] .

For example, the volume of oil production on shale formations in the United States significantly depends on the dynamics of the price of WTI oil. About six months after the price change, drilling activity (investment in fixed assets) changes, and with it the production volumes. These changes and their expectations are so significant that they themselves affect the price of oil and, therefore, future production volumes.

These patterns in mathematical language are described by a differential production equation with an offset argument ^[4] .

A typical example of the Kitchin cycle is the short-term economic boom between the equally short-term downturns of the Financial and Economic Crisis in Russia (2008–2010) and the Currency Crisis in Russia (2014–2015) that all fit into the periodicity of the Juglar cycles and are its subphase. Defined as being of little significance against the background of Kuznets cycles and not at all significant against the background of Kondratiev cycles.