European Business Fluctuations in the Austrian Framework

Parnaudeau, Miia (2008): European Business Fluctuations in the Austrian Framework. Published in: Quarterly Journal of Austrian Economics No. 11 (16 August 2008): pp. 94-105.

Abstract

The Austrian theory mainly deals with analyzing the effects of an increased credit offer on productive structures. In this respect, we propose to link long-term growth cycles to various short-term interest rate gaps. Are European Business Cycles affected when a fall in the money market rate disrupts agents’ expectations of inflation? Using the hypothesis that individual speculation is motivated by the difference between short-term real interest rates and their natural levels, we argue that Wicksellian interest rate gaps can account for a high proportion of long-term fluctuations in 4 European countries (Germany, France, Italy and Spain). We present specific dating methods and filters used in order to distinguish between short-term and long-term growth cycles. The Wicksellian incentives we constructed are then significantly linked to long-term business fluctuations. Under the hypothesis of adaptive expectations of inflation, our results are enhanced.

• Item Type: MPRA Paper
• Language: English
• Keywords: European Growth Cycles Inflation Expectations
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers

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