**1. Introduction**

The vulnerability of financial stability toward any risk might arise shed light on the linkage between global demand and financial stability as a key factor that influences the economic system and the trend of the business cycle. Studying the business cycle is the top macroeconomic topic which is interlinked for any economic and noneconomic issue that might arise. The concept of the business cycle is a macroeconomic concept based on different definitions with reference to the context referred to, such as the macroeconomic variables investment, inflation, consumption, GDP, and production. Within this study, we will refer to the business cycle within the GDP. Schumpeter [1] is initiating the concept of the business cycle through the innovation cycle in the economy as "innovation clusters". The long cycle in the economy is complemented by Mensch [2], Haustein and Neuwirth [3], Van Duijn [4], and Kleinknecht [5] by further empirical studies.

Clarke et al. [6] pointed out an increase in the number of critical innovations during the recovery of the long cycles. Singer [7] has complemented the theory of the long cycle by finding that the trade gaps between standardized and innovative products follow a deteriorating trend. The application of these studies in the commodities economy has brought important literature with different approaches. The fluctuation of the long cycle and the commodities have lay an important role in the variation of the intensity of use of productive inputs, where the commodities such as precious metals and energy have played a relevant role. For the expansion phase, the expanding demand for precious metals drags prices upwards. Respectively in the new period of stagnation, the intensity of demand drops as well as the prices of precious metals. It is by analogy applying to the energy sector as well as the financial market. Studying the long cycle of commodities and the financial cycle and their connection to the global economic dynamics is an area to be more and more explored, as these sectors are open for more interconnected development.

Within this context, this chapter is novel as it might contribute to an area of limited research, which is less studied by combining the commodities market and the financial market. The macroeconomic impact of the commodities on the business cycle has been studied in isolation or within the monetary policy but not in conjunction with the standards of the business cycle. Studying the interlink of the commodities and the business cycle is a big literature with different empirical approaches, studies, and theoretical focusing on detecting the breaks of the time series components.

Therefore, decomposing and forecasting the business cycle within the commodities and the stocks frame can be efficient for policy decisions and the synchronization of the interference and the trade-off between the concerned targeted policies. The business cycle is considered as the main framework for the evaluation of the economic system in general and the policymakers. We attempt to interlink the financial sector and commodities with the business cycle to give a more-clear overview about the economic system in general. The interdependence between the business cycle and the financial cycle was with a prominent literature taking the credit gap and house prices as a reference for the financial sector [8–11].

Within our study, we are referring to the stock prices for the financial cycle. Several literatures treat the stock market and the commodities apart for the interlink with the business cycle of the economy. The study of the volatility of the business cycle allows for more vulnerability toward any economic and extra-economic shocks such as the buoyant of the stock market and the pro-cycle of the commodities.

Within this chapter, we aim to investigate the impact of the energy commodity e.g., the crude oil, and the non-energy commodity e.g., the gold and the financial cycle on the global business cycle. It is a univariate unobserved component model followed by an extension to the multivariate model using the commodities and the financial cycle to decompose the macroeconomic aggregates. The eventual connection between the long cycle of the commodities and the financial cycle with the economic cycle considers the further relationship between the business cycle and the demand for the

*The Global Business Cycle within the New Commodities and the Financial Cycle… DOI: http://dx.doi.org/10.5772/intechopen.111482*

essential commodities selected as well as the proxies of the financial cycle. In economic theory, the long cycle classified with different groups basic on different factors to study the cyclicity of the economy for different horizons: the business cycle (2– 8 years), the Kitchin cycle (3–5 years), the Juglar cycle (7–11 years), the Kuznet swings (15–25 years), the medium term business cycle, and long economic cycle wave or the Kondratiev wave (K-wave) currently recognized with the period of 45–60 years [12]. Within this study, the chosen period is 36 years, quarterly data, dated from 1984- Q1 to 2020-Q4 studying the global business cycle.

The chapter is structured as follows: In the first section, we decompose the trend of the commodities cycle using the filtering approach. The second section is dedicated to analyzing the financial cycle for the selected global assets. The third section is devoted to the modeling using the univariate and multivariate approach for the Unobserved Components Model. The fourth section presents the estimation of the model and reports our numerical results. The last section contains a discussion of further policy recommendations and concluding remarks.
