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Predicting Economic Depressions and Market Behaviour
The final stage of marketing research is symptomatology of the market and compilation of the long-term and short-term forecasts of the market development. Development and deepening of the market relations in a country and the world demand a profound research of the dynamics of tactical indicators. By drawing up the marketing forecast and prediction of the economic depressions, it is necessary to single out the major factors, which will act for the future period. It is necessary to estimate the objective importance of the action of all these factors and to determine which of them testify to the gradual accumulation of a present phase of the forces cycle capable to transfer the development to the following step. In other words, in order to predict the economic depression, it is important to watch the indicators of the approaching crisis, in a crisis phase - the indicators of transition to a depression and in a depression phase - the indicators of transition to revival, etc. Thus, the forecast of the economic depression should be based on the factors which will take place in the future. It means that the system of indicators for the forecast radically differs from the indicators used in the analysis of market condition. Moreover, the indicators of the forecast of different phases of a cycle differ from each other, and every time the special system of the indicators covering the whole set of the phenomena is necessary.
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Objective of the study
The main objective of the present research is to analyze the prediction of the economic depressions and forecasting of the market behavior in the world economy.
Rationale of the study
The importance of the given study is explained by the fast changing of the global financial system. The more efforts are made for the control of this process, the quicker it is untwisted. Due to these causes, the forecast of the economic depression and changes of the marketing behavior play a key role in the development of the global economy. The study can increase the awareness level of all interested parties in the forecasting of the economic situation in the world.
Statement of the Research Questions
In order to analyze how to predict the economic depression and market behavior in the given research paper, it is necessary to answer the following research questions:
- What are the factors of the forecast of the economic depression and market behavior?
- What are the global periods of depression and market behavior and how were they predicted?
- Is the knowledge of the previous economic depressions effective for the future predictions?
Limitation of the Study
The study is limited to the research of the economic depressions of 1929-1930 and 2008 and market behavior within the indicated periods of time.
The given research paper consists of such chapters as introduction, literature review, methodology, analytical results, conclusion and the list of references. Some of the chapters are divided into subchapters, giving a more detailed coverage of the topic of the research paper.
The given chapter includes such sections as operational definition of terms and concepts, review of peer-reviewed journal articles and summary, comments and criticism.
Definition of Terms and Concepts
- Forecast is the assessment of the future tendency with the help of the research and analysis of the available information. An economic forecast is the result of the scientific research about the possible directions of the future development of economy and its separate segments;
- Economic depression is a business cycle phase, starting after the crisis of overproduction. It is characterized by the termination of the production decline, a gradual selling out of the “surplus” of commodity masses, a sluggish economic environment and a big unemployment. Depression is a strong recession, including such characteristic features as the fall of GDP, the growth of unemployment, reduction of industrial production, and decrease in the volumes of trade and decrease of the standard of living of the population. However, unlike the recession period, all these factors are shown especially strongly during a depression. Usually, depression occurs during or as a result of an economic crisis;
- Market behavior is the economic situation, occurring on the market and characterized by the levels of demand and supply, market activity, prices, sales volumes, the movement of interest rates, an exchange rate, salary, dividends and also the dynamics of production and consumption. The tactical market depends on the actions of factors, the basic ones of which are: monetary income of consumers, goods prices, the ratio of supply and demand of securities, and their profitability. The environment of the separately taken market should be considered taking into account interaction and mutual influence with the other markets. Each market is closely connected with an all-economic situation in the country and the region. Therefore, the analysis of the definite market should be based on the assessment of an all-economic situation in general.
Review of Peer-Reviewed Journal Articles
The economic recession can be predicted, owning to the skills of collecting the necessary information. There are the so-called “advancing indicators of recession”. It is necessary to monitor these indicators in order to see the general economic trend. The advancing indicators of recession in economy are:
- Indicators of the level of new construction and permissions to new buildings and constructions;
- Sales volume of automobile and trucks;
- The data on unemployment.
The Great Recession is considered to be the most destructive economic crisis for the whole history of the world economy. A number of the largest countries endured a mass unemployment and a sharp reduction of the income of the population. This crisis set many economists thinking about the validity of the application of the classical economic theory. Within the frameworks of this concept it was impossible to explain a depression: the classical theory claims that the national income depends on the offer of the factors of production and the existing technology, but these variables did not undergo considerable changes in the period of 1929-1930.
In June 1930, in the USA the so-called “Distemper-Hawley tariff”, entering 40 percentage duty on import for the protection of domestic market, was accepted. This measure became one of the main channels of transfer of the economic crisis to Europe as the sales of products of the European producers in the USA were complicated. At the end of 1930, the investors of banks started a mass withdrawal of deposits that led to the wave of the bankruptcies of banks. As a result, an absolute compression of money supply began. The second banking panic occurred in the spring of 1931. In 1932, GDP was reduced by 13.4%, and since 1929 - by 31%. The unemployment rate in 1932 increased up to 23.6%. More than 13 million Americans lost their work places from the beginning of the Great Depression. The industrial stocks lost 80% of their cost since 1930, and the agricultural prices fell up to 53% since 1929. In three years two of each five banks went bankrupt, their investors lost $ 2 billion of deposits.
The work of John Maynard Keynes “The General Theory of Employment, Interest, and Money” became the greatest contribution to the understanding of the mechanism of the Great Depression and its prediction, and also a reference point of modern macroeconomic studies. Keynes assumed that the reduction of a cumulative demand is the reason of a low level of the income and high unemployment rate, which characterizes the economic crises. The forecast of the market behavior is necessary for any government for the implementation of the control over the private sector, for the increase of efficiency of tax services and also for the attempts to limit the predicted market behavior. It is influenced by a number of factors such as economic, social-cultural, demographic, technological, etc.
Also, the global economy entered the period of depression in 2008. There was no growth in the world economy, except for China and the countries of the Southern – Eastern Asia. The growth in these countries could be described as parasitic, as it used cheap labor force and ready production. Using such strategy, the producers of the above-mentioned countries captured the markets of the developed countries, aggravating the difficult position of their economies.
The main reason of the tactical fluctuations is the cyclic nature of the development of market economy. However, market behavior is, as a rule, more dynamic phenomenon than the cycle phases. The main complexity in the studying of market behavior, especially when developing forecasts, consists not in definition of the circle of factors and elements of its formation. The most important problem of any research of market behavior consists in establishment of the importance, force of the impact of certain factors on the market formation, and also identification of the leading factors.
There are the following factors influencing the market behavior at the development of forecasts. Production is the first one. When developing the forecast, the analysis of the dynamics of production in general, the main reasons of the change of production volumes (demand change, emergence of new technologies, and input of additional capacities) become clear. Such indicators as the dynamics of production expenses and change of the number of the working population are taken into consideration.
Summary, Comments and Criticism
Majority of authors agree in the opinion that depression is the condition of economy, characterized by lowering of the demand level at all markets. In the conditions of a depression, the demand curves in all markets are displaced to the left (demand falls). It means reduction both in production and employment. Many companies stop implementation of investments, promoting the development of the depression.
Thus, the cumulative decline in demand and change of expectations can considerably strengthen the decline in demand in all markets and lead to the emergence of a depression. Depression means reduction of the output, when production of the gross national product is less than the “normal” level, made at a full employment of a full labor. It also leads to emergence of a new type of unemployment caused by this temporary decline in production. In the estimation of most researchers of the forecast of economic depression and market behavior, the latter can change due to the external factors such as production, analysis of dynamics of production, change of the number of the working population, etc.
Methodology of the economic theory is a science about the methods of the research of the economic processes and economic phenomena. The study of forecasting/predicting of economic depression and market behavior includes a detailed analysis of the stages of crises in different years of the global economic thought. This chapter of the research paper includes sampling and the data collection methods, tools of analysis and data presentation techniques.
Sampling and Data Collection Methods
The sampling was made on the basis of the global crises 1929-1930 and 2008. The dates were selected randomly, taking into account the major global crises, having the most negative consequences for the global economy. Such primary data collection methods as observation and the expert assessment method were used while researching the forecast of the economic depression and market behavior. Moreover, among the secondary data collection methods the global state and branch statistics was used during the research. The market of the economic information was also used in the paper.
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