Recurrence Quantification Analysis of Business Cycles

There is a debate in the literature whether the dynamics of an economy is chaotic
or stochastic, and whether shocks are endogenous or exogenous (e.g. RBC theory,
Austrian School, Neo-Keynesian economics, etc.). Most studies concentrated on
financial time series (e.g. stock indices) because of accessibility of data, frequency
and length. For example, Mastroeni et al. [20, 21] found co-existence of stochastic
and chaotic behaviour in copper time series and energy prices. In finance where
data is abundant, both in terms of frequency and asset, results are mixed from no
evidence, to weak evidence to evidence type [12]. Instead, in this book, with an
extensive analysis on macroeconomic data (i.e. consumption, investment, capital
and income), we focus on economic time series with the aim to investigate two
issues. The first is the applications of recurrence plots, and their quantitative
description provided by RQA, to dynamical regimes of business time series. The
second issue we investigate is whether RQA can give some indications on the nature
of business cycles as well, as on the nature of macroeconomic variables and the
economy [30].