The Austrian Theory of Business Cycles

The Austrian Theory of Business Cycles

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This paper reviews the qAustrianq 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.They would argue that the upturn of this cycle was driven by strong expansions of money and credit, which fueled a level and ... Thus, rather than avoiding recession in the wake of the stock market crash, the policy of injecting liquidity would beanbsp;...

Title:The Austrian Theory of Business Cycles
Author:Mr. Stefan E. Oppers
Publisher:International Monetary Fund - 2002-01-01


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