The Mises-Hayek Business Cycle Theory, Fiat Currencies and Open Economies

36 Pages Posted: 5 Mar 2012 Last revised: 25 Jul 2012

See all articles by Nicolas Cachanosky

Nicolas Cachanosky

Metropolitan State University of Denver; American Institute for Economic Research

Date Written: July 17, 2012

Abstract

This paper extends the Mises-Hayek business cycle theory to open economies with fiat currencies. I explore: (1) the problem of domestic versus international monetary policy with fiat currencies in an international setting. (2) How the feedback effects between central banks in the context of an expansionary monetary contributes to extend and transmit a Mises-Hayek business cycle from big economies to small financially integrated economies. I find that a lengthening of the period of production is not the only effect produced on the capital structure, but also a misallocation of capital goods between the production of tradable and non-tradable goods and services and that business cycles can become more severe when there are open economies with fiat currencies.

Keywords: Austrian business cycle theory, small open economies, fiat currencies, interest rate channel, foreign exchange rate channel, monetary policy

JEL Classification: E32, E52, F42

Suggested Citation

Cachanosky, Nicolas, The Mises-Hayek Business Cycle Theory, Fiat Currencies and Open Economies (July 17, 2012). Review of Austrian Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2015456 or http://dx.doi.org/10.2139/ssrn.2015456

Nicolas Cachanosky (Contact Author)

Metropolitan State University of Denver ( email )

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Denver, CO 80217
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HOME PAGE: http://www.ncachanosky.edu

American Institute for Economic Research

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Great Barrington, MA 01230
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