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Austrian business cycle theory: Empirical evidence

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Abstract

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.

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Notes

  1. Garrison explored these two analysis ways in 2001 and 2003.

  2. Source: Eurostat, quarterly real GDP series, real prices 1995.

  3. The perfect equivalence between identified business cycles and pure Austrian business cycles would require that any recession could be defined by a decline of real GDP and by a decrease of investment expenditures relative to consumption expenditures. Now, empirically, the correlation between GDP variations and investment variations is not perfect.

  4. Source: ODCE database, quarterly series, millions of national currency.

  5. “The notion that prices will not convey the signals of real behaviour is one of several similarities between Austrian and Real business cycle theory, as Garrison (1991) noted”, Keeler (2001: 334).

  6. For more details concerning these estimators and their properties, see Baltagi (2005), Sevestre (2002) and Hsiao (2003).

  7. For more details, see Hurlin and Mignon (2005) and Bismans and Damette (2007).

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Authors and Affiliations

  1. University Of Nancy 2, BETA, Nancy, France

    Francis Bismans

  2. University Paul Verlaine of Metz, BETA, Metz, France

    Christelle Mougeot

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  1. Francis Bismans
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  2. Christelle Mougeot
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Correspondence to Francis Bismans.

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Bismans, F., Mougeot, C. Austrian business cycle theory: Empirical evidence. Rev Austrian Econ 22, 241–257 (2009). https://doi.org/10.1007/s11138-009-0084-6

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