Cyclicality of capital-intensive industries: a system dynamics simulation study of the paper industry

This paper provides a view on the cyclicality of capital-intensive industries that could add considerably to our understanding of how cycles in prices, profits and capacity come about. Previous studies of business cycles focus on macro-economic systems or on the agricultural sector. Causes for fluctuations are typically believed to be mainly exogenous in nature. We seek to extend the existing literature on industrial cycles by developing a model that incorporates endogenously generated cyclicality. A simulation model of the paper industry is developed, and validated on the basis of data for the US paper industry.