Cyclical Variation in Time Series

What is cyclical variation in time series?

Cyclical variation is a recurrent upswing and downswing in a time series that is not a regular seasonal pattern. Cyclical variations typically have a period of 4 to 10 years, but they can be longer or shorter.

Cyclical variations are caused by a variety of factors, such as:

• Business cycles: Business cycles are periods of economic expansion and contraction. During an economic expansion, businesses are more likely to invest and hire new employees, which leads to an increase in economic activity. During an economic contraction, businesses are more likely to lay off employees and cut back on investment, which leads to a decrease in economic activity.
• Political cycles: Political cycles can also lead to cyclical variations in time series. For example, government spending tends to increase during election years, which can lead to an increase in economic activity.
• Technological innovation: Technological innovation can also lead to cyclical variations in time series. For example, the introduction of new technologies can lead to a period of economic expansion, as businesses invest in new technologies and hire new employees to implement them.

How to identify cyclical variation in time series

Cyclical variation can be identified by plotting the time series data on a graph and looking for a pattern of upswings and downswings that are not regular seasonal patterns.

How to deal with cyclical variation in time series

Cyclical variation can be dealt with in a number of ways, such as:

• Ignoring it: If the cyclical variation is small and does not have a significant impact on the overall trend of the time series, it can be ignored.
• Adjusting the data for the cyclical variation: This can be done by using statistical techniques, such as detrending or deseasonalizing the data.
• Modeling the cyclical variation and using the model to predict future values of the time series: This is often done in forecasting applications.

Multiple choice questions on cyclical variation in time series

Here are some multiple choice questions on cyclical variation in time series with answers:

1. Which of the following is not a cause of cyclical variation in time series?
   • Business cycles
   • Political cycles
   • Technological innovation
   • Seasonal variations
   • The answer is Seasonal variations. Seasonal variations are regular patterns that repeat themselves at fixed intervals, such as the seasons. Cyclical variations are not regular patterns.
2. How can you identify cyclical variation in time series?
   • By plotting the time series data on a graph
   • By using statistical techniques, such as moving averages and regression analysis
   • Both of the above
   • None of the above
   • The answer is Both of the above. You can identify cyclical variation in time series by plotting the time series data on a graph and by using statistical techniques, such as moving averages and regression analysis.
3. What is the difference between cyclical variation and trend variation?
   • Cyclical variation is a short-term fluctuation around the trend, while trend variation is a long-term movement of the time series.
   • Cyclical variation is a more regular pattern than trend variation.
   • Cyclical variation is only useful for time series that have a clear trend.
   • None of the above.
   • The answer is The difference between cyclical variation and trend variation is that cyclical variation is a short-term fluctuation around the trend, while trend variation is a long-term movement of the time series.