The Slutsky effect - In Brief
- No one understood how random (or “stochastic”) processes help drive economic fluctuations until Soviet econometrician Eugen Slutsky did the math in the 1920s.
- In a novel experiment, he showed that random numbers subjected to statistical calculations like those used to reveal trends in economic data formed wavelike patterns indistinguishable from actual business cycles.
- Slutsky’s insight contributed to the development of modern models that simulate the economic impact of shocks such as innovations, energy price hikes and tax cuts. More than 60 years after his death, Slutsky’s discovery remains at the core of ongoing research on business cycles.
