Skip to main content
SpringerLink
Log in

Empirical Evidence on the Austrian Business Cycle Theory

  • Published:
The Review of Austrian Economics Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Bernanke, B. S. (1990) “On the Predictive Power of Interest Rates and Interest Rate Spreads.” New England Economic Review, 51-68.

  • Burns, A. F., and Mitchell, W. C. (1946) Measuring Business Cycles. New York: National Bureau of Economic Research.

    Google Scholar 

  • Council of Economic Advisors (various issues). Economic Report of the President. Washington, D.C.: U.S. Government Printing Office.

  • Federal Reserve Economic Data (FRED). St. Louis: Federal Reserve Bank of St. Louis.

  • Federal Reserve Bulletin (various issues).Washington, D. C.: Board of Governors of the Federal Reserve System.

  • Garrison, R. W. (1986) “Hayekian Trade Cycle Theory: A Reappraisal.” Cato Journal, 6(2): 437-459.

    Google Scholar 

  • 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 

  • Hayek, F. A. [1967 (1935)] Prices and Production, 2nd edn. New York: Augustus M. Kelley.

    Google Scholar 

  • Hughes, A. M. (1997) “The Recession of 1990: An Austrian Explanation.” Review of Austrian Economics, 10(1): 107-123.

    Google Scholar 

  • 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 

  • 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 

  • Mises, L. von. [1966 (1949)] Human Action, 3rd revised edn. Chicago: Henry Regnery Company.

    Google Scholar 

  • Mises, L. von. [1971 (1912)] The Theory of Money and Credit. Irvington-on-Hudson, New York: The Foundation for Economic Education Inc.

    Google Scholar 

  • 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 

  • Robbins, L. (1934) The Great Depression. London: MacMillan.

    Google Scholar 

  • Romer, D. (1996) Advanced Macroeconomics. New York: McGraw-Hill.

    Google Scholar 

  • Rothbard, M. N. (1970) Man, Economy and State. Los Angeles: Nash Publishing Co.

    Google Scholar 

  • Survey of Current Business (various issues). Washington, D.C.: U.S. Department of Commerce, Bureau of Economic Analysis.

  • Trautwein, H. M. (1996) “Money, Equilibrium, and the Business Cycle: Hayek'sWicksellian Dichotomy.” History of Political Economy, 28(1): 27-55.

    Google Scholar 

  • Tullock, G. (1988) “Why the Austrians Are Wrong about Depressions.” Review of Austrian Economics, 2(1): 73-78.

    Google Scholar 

  • 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 

  • White, L. H. (1984) The Methodology of the Austrian School Economists. Auburn, AL: Ludwig von Mises Institute.

    Google Scholar 

  • Witte, J. G. (1963) “The Microfoundations of the Social Investment Function.” Journal of Political Economy, LXXI(5): 441-456.

    Google Scholar 

  • Zarnowitz, V. (1992) Business Cycles: Theory, History, Indicators andForecasting. Chicago: University of Chicago Press.

    Google Scholar 

  • 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 

Download references

Authors
  1. James P. Keeler
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Keeler, J.P. Empirical Evidence on the Austrian Business Cycle Theory. The Review of Austrian Economics 14, 331–351 (2001). https://doi.org/10.1023/A:1011937230775

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/A:1011937230775

Keywords

Search

Navigation