Managing the prime rate to counter the cyclic income contraction

This article proposes an approach to formalize the quantitative relationship between increments of the prime rate and income. Such knowledge provides the possibility of income management according certain prefixed goals. Furthermore, this article considers the possibility of parrying the cyclical decline in income via a corresponding reduction of the prime rate. A management strategy based on the established functional relationship between investments and the prime rate is proposed. It is shown that if the long-term investment trend is inversely proportional to the prime rate, then the trajectory of the concerned cycle depends on the square root of the prime rate. Consequently, its change leads to the divergence of investment component values. This fact provides the basis for developing an approach to parry the cycle contraction. The cycle model in the form of random oscillations of an elastic system under the influence of white noise provides a quantitative estimate of the variation in the prime rate, which in turn, yields the required change in the value of income. Since the considered approach is based on the most probable trajectory of the cycle, the resulting expressions will also lead to the most probable estimates. The applicability of the proposed approach to the analysis of the cycle behavior is demonstrated by the example of current deviations in US income.