Cattle Cycles, Expectations and the
Age Distribution of Capital
David Aadland∗
May 2002
Abstract
This paper builds a dynamic forward-looking model describing the approximate ten-year cat-
tle cycle. The theoretical model improves on existing models by (1) allowing cow-calf operators
to make investment decisions on both the cow and calf margins, (2) formally recognizing the age
distribution of the capital stock, and (3) considering a mixed scheme of rational and naive ex-
pectations. The model is then calibrated and used to simulate artificial data that endogenously
generates ten-year cycles in the total stock of cattle.
JEL Codes: C61, Q11 and Q12.
∗To be presented at the 2002 AAEA Annual Meetings. This paper has benefited from the comments of Kevin
Huang, DeeVon Bailey, Sherwin Rosen, Lynn Hunnicutt, Russell Tronstad as well as the participants of the 2001
Western Agricultural Economic Association Annual Meetings, 2000 Society for Computational Economics Annual
Meetings, and the 2000 American Agricultural Economics Association Annual Meetings. The author is an As-
sistant Professor in the Department of Economics, Utah State University. Please send correspondence to David
Aadland, Department of Economics, Utah State University, 3530 Old Main Hill, Logan, UT, 84322-3530, or email:
aadland@econ.usu.edu.
1
1 Introduction
When people speak of the business cycle, they are generally referring to the sporadic recessions
and booms that occur in developed economies.
In this sense, the term business cycle is really a
misnomer because it misleads one into thinking of regular cyclical variations in economic activity
(for example, something that could be fit along a sine wave). The cattle cycle, on the other hand, is
anything but a misnomer. Aggregate cattle stocks are unique in that they are one of the few, if not
only, economic time series to display such amazingly regular cycles over such long periods of time
— approximately ten years from peak to peak (Mundlak and Huang, 1996). Figure 1 displays the
(detrended) total stoc