Kondratiev Wave
Candlefocus EditorThe idea behind Kondratiev waves is that during the “boom” part of the cycle, production and economic activity increases while prices tend to decrease. In this period, increased production leads to large profits and investments. During the “bust” part of the cycle, production and economic activity slows down as prices increase.
Kondratiev's theory was controversial and not widely accepted by the mainstream economic profession. This is largely because of the broad, aggregate perspective Kondratiev adopted to look at macroeconomic forces and the difficulty of empirically verifying the theory given the limitations and imprecision of early statistical methods.
More recently, scholars have looked at Kondratiev Waves from a different perspective. By looking at raw economic data, such as GNP, unemployment, inflation and interest rates, and attempting to segment them into statistically discernible groupings of data points it is possible that patterns may emerge that could be used to substantiate the Kondratiev Wave proposition. However, the limitations of this method are numerous and economists have generally frowned upon making definitive statements without more conclusive evidence.
Despite its controversial nature, Kondratiev's work was highly influential and is still studied by economists and financial commentators today. His theory of long-term economic cycle remains an interesting concept, though its validity remains open to debate. The ability of economists to distinguish real economic trends from statistical flukes is still a challenge, as Kondratiev's ideas serve to remind us.