Advertisement

The Review of Austrian Economics

, Volume 14, Issue 4, pp 319–330 | Cite as

Expectations in Austrian Business Cycle Theory: An Application of the Prisoner's Dilemma

  • Anthony M. Carilli
  • Gregory M. Dempster
Article

Abstract

The standard account of Austrian Business Cycle theory posits that central bank manipulations of interest rates fool bankers and investors into believing that there has been an increase in the real supply of loanable funds available for capital investment. However, reliance on “foolishness” ignores the entrepreneurial emphasis within the Austrian tradition and fails to produce the strongest possible case for Austrian Business Cycle theory. We use the prisoner's dilemma framework to model the profit maximizing behavior of bankers and the investors under uncertainty when the market rate of interest is below the underlying rate of time preference.

Keywords

Interest Rate Business Cycle Public Finance Central Bank Capital Investment 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Cowen, T. (1997) Risk and Business Cycles: New and Old Austrian Perspectives. New York: Routledge.Google Scholar
  2. Fackler, J. S., and McMillin, W. D. (1998) “Historical Decomposition of Aggregate Demand and Supply Shocks in a Small Macro Model.” Southern Economic Journal, 64(3): 648-664.Google Scholar
  3. Garrison, R. W. (1986) “Hayekian Trade Cycle Theory: A Reappraisal.” Cato Journal, 6(2): 437-459.Google Scholar
  4. Garrison, R. W. (1989) “The Austrian Theory of the Business Cycle in the Light of Modern Macroeconomics.” Review of Austrian Economics, 3: 3-29.Google Scholar
  5. Hayek, F. A. (1933) Monetary Theory and the Trade Cycle. London: Jonathan Cape.Google Scholar
  6. Hayek, F. A. (1935) Prices and Production. 2nd edn. London: Routledge.Google Scholar
  7. Hayek, F. A. (1939) Profits, Interest, and Investment. London: Routledge.Google Scholar
  8. Mises, L. [1971 (1912)] The Theory of Money and Credit. New York: Foundation for Economic Education.Google Scholar
  9. Tullock, G. (1988) “Why the Austrians Are Wrong about Depressions.” Review of Austrian Economics, 2: 73-78.Google Scholar
  10. Wagner, R. E. (1999) “Austrian Cycle Theory: Saving the Wheat while Discarding the Chaff.” Review of Austrian Economics, 12: 65-80.Google Scholar
  11. Yeager, L. B. (1986) “The Significance of Monetary Disequilibrium.” Cato Journal, 6 (Fall): 369-395.Google Scholar

Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Anthony M. Carilli
  • Gregory M. Dempster

There are no affiliations available

Personalised recommendations