Kondratiev Wave

What Is a Kondratiev Wave?

A Kondratiev Wave is a long-term economic cycle in commodity prices and different prices, accepted to result from mechanical innovation, that creates a long period of success substituting with economic decline. This theory was established by Nikolai D. Kondratiev (likewise spelled "Kondratieff"), an agricultural economist who saw agricultural commodity and copper prices experienced long-term cycles. Kondratiev accepted that these cycles included periods of advancement and self-amendment.

Otherwise called "Kondratieff Wave," "supercycle," "K-Wave," "flood" or "long wave."

Key Takeaway

• Kondratiev Waves are apparent long-term (~50 year) wave-like patterns in certain statistically-changed economic time series data.
• Kondratiev Waves were initially depicted by agricultural economist Nicolai Kondratiev and have since been concentrated on by different economists and financial pundits.
• Kondratiev's theory isn't generally accepted by economists and can undoubtedly be made sense of as a statistical illusion made by his changes of the raw data.

Figuring out Kondratiev Waves

Kondratiev's research into the pricing of agricultural commodities drove him to investigate historical prices of wheat and different yields in major European grain markets where price records had been kept up with. He managed to collect just about 150 years worth of data on commodity prices from different markets. Kondratiev combined these data sets of reported market prices together to make long time series of price data. He then changed the subsequent data series from raw price data into moving averages as well as the paces of-progress of prices and their individual moving averages. Kondratiev wanted to investigate the long-term attributes and trends in prices by doing this to the data.

Along these lines, Kondratiev had the option to distinguish what he accepted to be a customary wave-like pattern in commodity prices with a period of roughly 50 years. He declared that two full cycles could be seen in his data, the principal running from 1790-1849 and a second from 1850-1896, and that world commodity markets were about mid-way through a third wave. He wanted to utilize bits of knowledge acquired from the patterns he saw to assist with Soviet planning of prices and production in the economy of the U.S.S.R.

Be that as it may, Kondratiev's theory was not invited. His perspectives were detested by Communist authorities since they suggested that capitalist nations were not on an inevitable path to destruction, but rather that they rather just experienced highs and lows. Kondratiev was additionally an excited advocate of Lenin's New Economic Policy, which once again introduced markets for certain goods and services after the early awful disappointments of economic central planning in the Soviet economy, however was cursed with Stalin's rise to power. Because of his economic thoughts, Kondratiev was condemned to 8 years in a jail close to Moscow. Endless supply of his sentence he was retried and condemned to a further 10 years, yet rather than being detained, he was shot to death by NKVD (Soviet secret police) agents at the Kommunarka execution grounds in Moscow.

Later Application of Kondratiev's Theory

A few later economists have looked into Kondratiev's theory, however it stays more famous with non-economically prepared investors that economists. Different defenders of these thoughts frequently differ on the timing, heading, and causal factors included. A few financial and economic forecasters have endeavored to utilize Kondratiev Waves and comparable speculations in their predictive models.

In his book Economic Cycles, Joseph Schumpeter contended that a series of wave-like patterns of various lengths, including Kondratiev Waves (notwithstanding other more limited waves), could make sense of historical and cyclical trends in the economy. He credited mechanical innovation as the primary driver of Kondratiev Waves.

Do Kondratiev Waves Really Exist?

The presence of Kondratiev Waves isn't generally accepted by economists. The fairly erratic and frequently clashing perspectives on the timing and nature of Kondratiev's theory prompts a lack of consensus even among it's defenders with respect to what a Kondratiev Wave really is, and where the economy is on the alleged wave at some random point in time. The moderately long period of the waves compared to the length of the data available (a couple of full waves long) makes firm ends on their qualities intrinsically dinky.

Besides, a notable mathematical property of random time series data, known as the Slutsky-Yule Effect, shows that changing the data by taking successive moving averages and paces of-progress between data points (as Kondratiev did with his raw price data) makes spurious wave-like patterns that mirror no underlying trend in the actual data. This can undoubtedly be exhibited with any series of random numbers. It means that results like Kondratiev's are in all likelihood coincidental relics of statistical rubbing of the data, with no genuine logical or predictive power outside the changed data (which are fundamentally backward looking by the definition of a moving average).