European Business Fluctuations in the Austrian Framework

Author: Parnaudeau, Miia

Source: The Quarterly Journal of Austrian Economics, Volume 11, Number 2, June 2008 , pp. 94-105(12)

Publisher: Springer

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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 four 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.

Keywords: Business cycle; Inflation; Taylorian rate

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s12113-008-9035-5

Affiliations: 1: ESCEM School of Business and Management, 11 rue de l'Ancienne Comédie, B.P. 5-86001, Poitiers Cedex 3, France, Email: mparnaudeau@escem.fr

Publication date: 2008-06-01