The ribbon traces GDP-over-time as a rising and falling wave. Colour marks
the phase of the business cycle: green expansion, gold peak, red recession,
blue trough. A shock displaces the wave's current point away from trend; the
economy then oscillates back toward trend at a rate set by policy tightness.
gdp(t) = trend(t) + A·sin(ωt) + shock·e^(−t/τ)
τ = τ0 / (1 + monetary_tightness)
inflation ≈ 2% + 0.05·output_gap − 0.02·monetary_tightness·100
output_gap = gdp(t) − trend(t)
- Monetary tightness — higher central-bank rates damp the cycle faster (shorter decay time τ) but also slow growth.
- Fiscal stimulus — government spending raises the wave's baseline amplitude, pushing growth and inflation up together.
- Shock magnitude — an instantaneous demand/supply shock (positive = boom, negative = bust) that the cycle then absorbs over time.