What is Procyclic?
Procyclic refers to the behavior and actions of a measurable product or service that move in tandem with the economic cycle.
- Procyclic is a condition in which there is a positive correlation between the value of a product, service, or economic indicator and the overall state of the economy.
- Examples of procyclic economic indicators include gross domestic product (GDP), labor force, and marginal cost.
- Policy and fiscal behavior are usually categorized into pre-circular patterns during periods of boom and bust.
Economic indicators can have one of three different relationships with the economy: countercyclic (the indicator and the economy move in opposite directions), non-cyclic (the indicator has nothing to do with the state of the economy). , Or procyclic.
Procyclic is a condition in which there is a positive correlation between the value of a commodity, service, or economic indicator and the overall state of the economy. In other words, the value of a good, service, or indicator tends to move in the same direction as the economy, growing as the economy grows and decreasing as the economy declines.
Examples of procyclic economic indicators include gross domestic product (GDP), labor force, and marginal cost. Most consumer goods are also considered procyclic, as consumers tend to buy more discretionary goods when the economy is in good shape.
Policy and fiscal behavior are usually categorized into precirculatory patterns during periods of boom and bust. When there is economic prosperity, many members of the population engage in actions that not only follow their growth, but also help extend the period.
Until the housing and financial crises of the late 2000s, there was collective expectation for continued economic gain. Consumers are engaged in more spending, borrowers are seeking mortgages for homes that may be out of repayment, financial institutions are encouraging such actions, and government policy is such a trend. Was rarely blocked. As long as the market collectively supported the “boom” nature and nourished the economy, this continued until bad debts and other problems became non-negligible and the market collapsed.
The economic situation changed when the “bust” part of the cycle hit. Private consumption has declined, banks and loan companies have cracked down on lending practices, foreclosures of homes with expired mortgages have spread throughout the market, and federal law has been swiftly drafted to prevent everything from recurring. All of these were pre-periodic reactions to the behavior at hand.
The farther the economy is from the time of the crisis, the more spending will increase and certain laws that financial institutions have found to be a nuisance may be questioned. Such behavior is pre-circular, as there is a desire to remove what is considered a constraint on choice when the market appears to be prosperous, unless there is an incentive to take different behavior.
The problem with a strictly positive reaction to the economy is that it does not allow positive action to prepare the market for a return fall in the end. If preventive measures are supported only during times of crisis, the actions that have contributed to the collapse of the market will probably be repeated.