Journal ArticleDOI
A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis
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The Austrian Business Cycle Theory (ABCT) has attracted renewed interest in recent years due to the financial crisis and the events leading up to it as mentioned in this paper, which has sparked a remarkable renewal of interest in Austrian business cycle theory, which was reinforced by the fact that a number of economists and financial commentators associated with the modern Austrian school had warned of an emerging housing bubble during the Greenspan era when the conventional wisdom was that the Federal Reserve System had matters well in hand.Abstract:
The financial crisis and the events leading up to it have sparked a remarkable renewal of interest in Austrian Business Cycle Theory (ABCT). Interest in the theory was reinforced by the fact that a number of economists and financial commentators associated with the modern Austrian school had warned of an emerging housing bubble during the Greenspan era when the conventional wisdom was that the Federal Reserve System had matters well in hand. A number of mainstream macroeconomists, such as Paul Krugman and Brad DeLong, have noted and criticized this resurgence of interest in ABCT on the grounds that it cannot explain the positive correlation of consumption and investment that occurs over the course of the business cycle. In particular they allege that the theory predicts a slump in investment and capital goods’ industries and a corresponding boom in consumer spending and retail sales during the recession. They therefore conclude that ABCT is manifestly in conflict with the stylized facts of the business cycle and should not be seriously entertained. In this paper I respond to these claims in two parts. First I argue that this interpretation grossly misrepresents essential features of the theory and is based on a single secondary source published in the mid-1930s which incorrectly portrayed ABCT as a “monetary overinvestment theory.” I show that this interpretation is manifestly in conflict with the presentation of the theory in the publications of its leading proponents. I then present an alternative version of the theory that is based on the works of Ludwig von Mises, Friedrich A. Hayek and Murray N. Rothbard. I argue that this version does satisfactorily account for the overconsumption boom and subsequent retail slump that were such conspicuous elements of the boom-bust cycle that played out over the past decade.read more
Citations
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Roundaboutness is not a Mysterious Concept: a Financial Application to Capital-Theory
Peter Lewin,Nicolas Catchanosky +1 more
TL;DR: In this article, the authors apply the EVA terminology to the concepts of roundaboutness and average period of production in capital theory, and show that these terms have a clear and well understood financial interpretation.
Journal ArticleDOI
Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets
TL;DR: Based on a Mises-Hayek-BIS view on credit booms and Mises law of unintended consequences, the authors suggests that the prolonged period of very low interest rates in the large advanced economies (unintentionally) spurs volatile capital flows and fuels asset market bubbles in fast-growing emerging markets.
Posted Content
Austrian Business Cycle Theory: A Modern Appraisal
TL;DR: In this paper, the authors developed a suitable ABCT variant that explicitly incorporates not only the economy's time structure of production but also its structure of consumption and its risk structure, highlighting the continuous input-continuous output nature of the housing market and the Treasury and Federal Reserve's roles in externalizing the risk associated with GSEs' debt.
Journal ArticleDOI
In the long run we are all unemployed
TL;DR: In this paper, a brief history of the Phillips curve is sketched, and empirical evidence from France, Germany, the United Kingdom and the United States during the latter half of the 20th century in support of a positive long-run relationship between price inflation and unemployment is presented.
Journal Article
Rethinking Capital Based Macroeconomics
TL;DR: In this article, an extension of the capital-based macroeconomics model is presented to explain why expansionary monetary policies fail in the longer term to solve the unemployment problems associated with recessions.
References
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Human Action: A Treatise on Economics
TL;DR: Mises attributed the tremendous technological progress and the consequent increase in wealth and general welfare in the last two centuries to the introduction of liberal government policies based on free-market economic teachings, creating an economic and political environment which permits individuals to pursue their respective goals in freedom and peace as discussed by the authors.
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Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
TL;DR: In this paper, Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery.
Journal ArticleDOI
Animal Spirits – How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism
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Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis
TL;DR: In this paper, the authors explain what caused the current financial crisis, what prolonged it, and what worsened it dramatically more than a year after it began, and suggest a set of principles to prevent misguided actions and interventions in the future.
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Time and Money: The Macroeconomics of Capital Structure
TL;DR: The Macroeconomics of Capital Structure as discussed by the authors, an agenda for macroeconomics, is an overview of the current state of the macroeconomic system and its role in the global economy.