The Review of Austrian Economics

, Volume 14, Issue 4, pp 331–351 | Cite as

Empirical Evidence on the Austrian Business Cycle Theory

  • James P. Keeler

Abstract

The Austrian business cycle theory suggests that a monetary shock disturbs relative prices, such as the term structure of interest rates, systematically altering profit rates across economic sectors. Resource use responds to those changes, generating a cyclical pattern of real income. The divergence of the interest rate structure, from the previous and unchanged time preferences, means that the expansion is unsustainable and must end in recession. Quarterly data for eight U.S. business cycles, 1950:1 through 1991:1 are standardized by time period and used to explore business cycle facts and relations between money, interest rates, capacity utilization and income. Results are consistent with the hypotheses of the Austrian theory of a business cycle caused by a monetary shock and propagated by relative price changes.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Bernanke, B. S. (1990) “On the Predictive Power of Interest Rates and Interest Rate Spreads.” New England Economic Review, 51-68.Google Scholar
  2. Burns, A. F., and Mitchell, W. C. (1946) Measuring Business Cycles. New York: National Bureau of Economic Research.Google Scholar
  3. Council of Economic Advisors (various issues). Economic Report of the President. Washington, D.C.: U.S. Government Printing Office.Google Scholar
  4. Federal Reserve Economic Data (FRED). St. Louis: Federal Reserve Bank of St. Louis.Google Scholar
  5. Federal Reserve Bulletin (various issues).Washington, D. C.: Board of Governors of the Federal Reserve System.Google Scholar
  6. Garrison, R. W. (1986) “Hayekian Trade Cycle Theory: A Reappraisal.” Cato Journal, 6(2): 437-459.Google Scholar
  7. Garrison, R. W. (1991) “New Classical and Old Austrian Economics: Equilibrium Business Cycle Theory in Perspective.” The Review of Austrian Economics, 5(1): 91-103.Google Scholar
  8. Hayek, F. A. [1967 (1935)] Prices and Production, 2nd edn. New York: Augustus M. Kelley.Google Scholar
  9. Hughes, A. M. (1997) “The Recession of 1990: An Austrian Explanation.” Review of Austrian Economics, 10(1): 107-123.Google Scholar
  10. Kydland, F. E., and Prescott, E. C. (1990) “Business Cycles: Real Facts and a Monetary Myth.” Federal Reserve Bank of Minneapolis. Quarterly Review, 14(2): 3-18.Google Scholar
  11. le Roux, P., and Levin, M. (1998) “The Capital Structure and the Business Cycle: Some Tests of the Validity of the Austrian Business Cycle in South Africa.” Journal for Studies in Economics and Econometrics, 22(3): 91-109.Google Scholar
  12. Mises, L. von. [1966 (1949)] Human Action, 3rd revised edn. Chicago: Henry Regnery Company.Google Scholar
  13. Mises, L. von. [1971 (1912)] The Theory of Money and Credit. Irvington-on-Hudson, New York: The Foundation for Economic Education Inc.Google Scholar
  14. Mishkin, F. S. (1981) “The Real Interest Rate: An Empirical Investigation.” In: Brunner, K., and Meltzer, A. (eds.) The Costs and Consequences of Inflation. Carnegie-Rochester Conference on Public Policy: Vol. 15, pp. 151-200. Amsterdam: North-Holland.Google Scholar
  15. Robbins, L. (1934) The Great Depression. London: MacMillan.Google Scholar
  16. Romer, D. (1996) Advanced Macroeconomics. New York: McGraw-Hill.Google Scholar
  17. Rothbard, M. N. (1970) Man, Economy and State. Los Angeles: Nash Publishing Co.Google Scholar
  18. Survey of Current Business (various issues). Washington, D.C.: U.S. Department of Commerce, Bureau of Economic Analysis.Google Scholar
  19. Trautwein, H. M. (1996) “Money, Equilibrium, and the Business Cycle: Hayek'sWicksellian Dichotomy.” History of Political Economy, 28(1): 27-55.Google Scholar
  20. Tullock, G. (1988) “Why the Austrians Are Wrong about Depressions.” Review of Austrian Economics, 2(1): 73-78.Google Scholar
  21. Wainhouse, C. (1984) “Empirical Evidence for Hayek's Theory of Economic Fluctuations.” In: Siegel, B. (ed.) Money in Crisis, pp. 37-71. San Francisco: Pacific Institute for Public Policy Research.Google Scholar
  22. White, L. H. (1984) The Methodology of the Austrian School Economists. Auburn, AL: Ludwig von Mises Institute.Google Scholar
  23. Witte, J. G. (1963) “The Microfoundations of the Social Investment Function.” Journal of Political Economy, LXXI(5): 441-456.Google Scholar
  24. Zarnowitz, V. (1992) Business Cycles: Theory, History, Indicators andForecasting. Chicago: University of Chicago Press.Google Scholar
  25. Zarnowitz, V. (1999) “Theory and History Behind Business Cycles: Are the 1990s the Onset of the Golden Age?” Journal of Economic Perspectives, 13(2): 69-90.Google Scholar

Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • James P. Keeler

There are no affiliations available

Personalised recommendations