The Austrian Theory of Business Cycles: Old Lessons for Modern Economic Policy?

January 1, 2002

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Format: Chicago

S. E Oppers The Austrian Theory of Business Cycles: Old Lessons for Modern Economic Policy?, (USA: International Monetary Fund, 2002) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper reviews the "Austrian" theory of the business cycle first proposed by Friedrich Hayek in the 1920s. His theory claimed that credit creation by monetary authorities would push investment beyond society's long-term willingness to save, creating a mismatch between supply and demand that would inevitably cause recession. The theory argued, moreover, that expansionary policies in recession could generally only postpone the necessary structural adjustment, making the subsequent correction more severe. Modern followers of this theory see Austrian features in a number of recent business cycles, including Japan in the 1980s and 1990s, and the more recent U.S. slowdown.

Subject: Business cycles, Consumption, Credit, Labor, Monetary expansion

Keywords: Economic activity, Economist, Interest rate, Investment, Recession, WP

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/002
Stock No:

WPIEA0022002
ISBN:

9781451841770
ISSN:

1018-5941

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