An Empirical Illustration of the Austrian Business Cycle Theory: The Case of the United States, 1988-2010 (original) (raw)

Austrian business cycle theory: Empirical evidence

The Review of Austrian Economics, 2009

The Austrian approach to business cycles has been seldom examined in econometric terms. This paper first reviews the essentials of that approach and the recent application of the Austrian business cycle theory in the economics literature. Quarterly data for Germany, USA, England and France, 1980:1 through 2006:1, are used to explore business cycle facts and relations between terms structure of interest rates, relative prices, composition of aggregate expenditure and real GDP. Results are consistent with the hypothesis of the Austrian business cycle theory that monetary policy shocks explain cycles. The changes in term structure of interest rates and composition of aggregate expenditure are large enough to explain changes in aggregate economic activity.

The Austrian Business Cycle Theory: Validity and Implications

2009

The chapter ends with some thoughts on the third question regarding the validity of the theory. Empirically, the present investigation is inadequate to make any bold conclusions, but the data does at least not falsify the theory. Further econometric investigations are necessary in order to answer this more definitely. The logic of the theory seems to some extent promising, and the Austrians are able to provide fairly good answers in response to most of the criticism. However, there are certain problems. The capital theory may be regarded as inadequate, the Keynesian critique of the market for loanable funds is problematic for the Austrian theory, and one may generally be skeptic towards the possibility of deriving true propositions through long chains of logical deductions.

Is the Austrian business cycle theory still relevant?

The Review of Austrian Economics, 2008

We compile econometric evidence from the latest available time series data on US savings, consumption, interest rates, and gross domestic product (GDP) to test a reduced form model of the Austrian Business Cycle Theory (ABCT). We build indexes that mimic the gap between the market and natural rates of interest and, using this gap as a proxy for expansionary policy,

Testing Austrian Business Cycle Theory? A Rejoinder to Andrew T. Young

Young (2005) attempts to test Austrian Business Cycle Theory (ABCT). The present paper is devoted to an examination of this test. Our conclusion is that Young’s paper fails on several grounds. In the first place, Young’s model fails on its own terms. In particular, we come up with significantly different parameter estimates using the same data. Beyond these serious objections, there is the more fundamental difficulty that Young’s approach, even if conducted flawlessly, would still be an improper “test” of ABCT.

The Austrian Business Cycle Theory: A Defense of Its General Validity

Quarterly Journal of Austrian Economics, 2015

The paper aims to defend the general validity of the ABCT against the assumption that the theory does not hold if entrepreneurs are able to anticipate correctly the inflationary effects of a fiduciary credit expansion. Hülsmann (1998) raises this critique and puts forward a general theory of error cycles centered on government intervention in the economy in order to overcome the perceived shortcomings of the traditional ABCT. The paper analyzes the main implications of this critique of the ABCT in terms of entrepreneurial foresight and the optimal course of action necessary to prevent a monetary induced business cycle, in particular in the context of fractional reserve banks operating under fiat currency. It concludes that within the general framework of human action, entrepreneurs cannot arbitrage away clusters of errors, and the ABCT remains valid. This paper also questions whether Hülsmann’s essentialist approach can be a viable alternative to the traditional ABCT, and find that,...

Does Austria respond to the German or the US business cycle?

International Journal of Finance & Economics, 2000

This study assesses the claim that the Austrian economy depends mainly on the German business cycle. Controlling for possible influences from the US economy, it is confirmed that the Austrian and German industrial production indexes have a common long-term stochastic trend and German industrial production Granger-causes the Austrian industrial production in the short run. However, German and US shocks only account for a small proportion of Austrian industrial production variability. Further, it is found that the three countries share a non-synchronized common business cycle. Copyright

Tyler Cowen on Austrian Business Cycle Theory: A Critique

Cowen (1997) criticizes Austrian Business Cycle Theory (ABCT) on eight grounds: 1. systematic errors; 2. inflation volatility; 3. confusion of inflation and savings; 4. confusion of inflation and investment; 5. real vs. nominal rates of interest; 6. interest rate information; 7. investor interpretation of interest rates; 8. validation of inflationary investments. The present paper rejects all of these claims, and defends ABCT against them.