Pork cycle

Pig cycle is a term originally from the agricultural science and refers to a periodic variation on the supply side, as it was originally presented as examples in the market for pork by Arthur Hanau in his dissertation on pig prices 1927. The term is now also common in economics.

Model

At high market prices, it comes to more investment, which, because of the rearing period only with a delay effect ( "Time Lag " ) affect the offer, but then lead to an oversupply and price erosion. Consequently, it is to reduce the production, which also affects only delayed - and then turn to a relative excess of demand ( supply gap ) and thereby increasing prices leads.

By this time delays in the control mechanism between supply, demand and price creates a market situation that can vary the offer. Only when the pig farmers are based on the expected prices in the marketing season point instead of the current swine prices at the time of the investment decision, the cycle can be stopped and the market price will be stabilized.

Methodologically, the work of Hanau based on U.S. preparations by Mordecai Ezekiel and GC Haas, the pig prices and their fluctuations in the U.S. described statistically from 1925.

A theoretical explanation for the pig cycle is trying to give ( cobweb theorem) which is also built on Mordecai Ezekiel Spinnwebtheorem.

Importance

The term is used in economics in the figurative sense of analogous processes in other markets. In labor markets about high salaries or general good opportunities lead in a particular area to an increasing number of freshmen who then push the same time after several years on the labor market. The worse job prospects shrink then from potential new students. Examples of such labor markets in Germany are the engineering profession and the teaching profession.

Also in the production of industrial goods such as computer chips of the pig cycle can be observed: High prices for memory chips lead to a tightening of investment and time delays to a new capacity. Once the new facilities are on the market, created an oversupply, which drops the prices and leads to reduced investments until demand exceeds supply, which in turn reacts only with a time delay exceeds again. Also on real estate markets (see: Property Clock ) or the extraction of raw materials such as crude oil, the markets can behave after the pig cycle. In electricity markets, the effect can also be observed to some extent. Here are the investment cycles due to the long implementation times of new power plant construction in the sense of a dead time (time lag) and useful lives of energy systems especially long. However, there is no demand for electricity, as this would cause an immediate collapse of the network ( blackout) result. January Tinbergen noted a shipbuilding cycle and a housing cycle.