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

Author/Editor: Oppers, Stefan E.
Authorized for Distribution: January 1, 2002
Electronic Access: Free Full Text (PDF file size is 841KB)
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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.
 
Series: Working Paper No. 02/2
Subject(s): Business cycles | Economic policy | Monetary policy
Author's keyword(s): Austrian School | Hayek | Friedrich (1899-1992); business cycles | monetary policy
 
English  
    Published:   January 1, 2002        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA0022002   Pages:   15
    Price:   US$15.00
       
     
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