Role of the Behavioral Cycle in the Economy

Abstract

This study introduces and empirically confirms the concept of a behavioral cycle, which reflects the change in the prevalent attitude of economic actors. Monitoring the dynamics of the behavioral cycle enables increasing the accuracy of determining the phase of the economic cycle, considering both the material and behavioral components of the economy. The behavior of actors is taken into account because of their economic expectations coupled with their previous experience in handling crises. The behavior of economic actors is affected by external environmental parameters, which, in turn, determine the individual predisposition of actors to engage in an active, adaptive, or reactive type of behavior. The fractal analysis shows long-term patterns in the dynamics of actors' expectations in Russia. The indicators of expectations are a persistent parameter used for identifying the phases of the behavioral cycle. This research singles out the phases of the behavioral cycle, starting from the 4th quarter of 1998, following the approach of D. Harding and A. Pagan and the indicators of expectations demonstrating the presence of long-term patterns. The study shows that seven behavioral cycles have been observed in Russia since 1998. Several peak values for behavior cycles coincided with crisis periods in the economy. The superimposition of the phases of the behavioral cycle on the economic cycle reveals a relationship between the behavioral cycle and the material cycle, forming the general economic cycle.