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

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  • S. E Oppers

Abstract

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.

Suggested Citation

  • S. E Oppers, 2002. "The Austrian Theory of Business Cycles; Old Lessons for Modern Economic Policy?," IMF Working Papers 02/2, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:02/2
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    Cited by:

    1. Jean-Marc Natal, 2004. "Deflation and Deflationary Traps: The Situation in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(I), pages 127-170, March.
    2. Peter G. Klein, 2010. "F.A. Hayek," Chapters,in: The Elgar Companion to Transaction Cost Economics, chapter 8 Edward Elgar Publishing.
    3. Andreas Hoffmann, 2014. "Zero-interest Rate Policy and Unintended Consequences in Emerging Markets," The World Economy, Wiley Blackwell, vol. 37(10), pages 1367-1387, October.
    4. Escañuela Romana, Ignacio, 2016. "Azar, Determinismo e Indecidibilidad en la Teoría del Ciclo Económico
      [Randomness, Determinism and Undecidability in the Business Cycle Theory]
      ," MPRA Paper 72978, University Library of Munich, Germany.
    5. Ignacio Escañuela ROMANA, 2016. "Randomness, Determinism and Undecidability in the Economic Cycle Theory," Journal of Economics and Political Economy, KSP Journals, vol. 3(4), pages 638-658, December.
    6. repec:kap:revaec:v:30:y:2017:i:2:d:10.1007_s11138-016-0340-5 is not listed on IDEAS
    7. Enrico Colombatto, 2004. "Sulle dinamiche del ciclo misesiano," ICER Working Papers 04-2004, ICER - International Centre for Economic Research.
    8. Kavaliov, Aliaksandr, 2015. "Austrian Business Cycle Theory: An Evolution and Contemporary Condition," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 43-62.
    9. van den Hauwe, Ludwig, 2007. "Professor Becker on Free Banking: A Comment," MPRA Paper 8251, University Library of Munich, Germany, revised 05 Nov 2007.
    10. Nicolas Cachanosky, 2014. "The Mises-Hayek business cycle theory, fiat currencies and open economies," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 27(3), pages 281-299, September.

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