Expectations in Austrian Business Cycle Theory: Market Share Matters

Abstract

One of the most important objections to the Mises-Hayek business cycle theory is the rational expectations critique. The debate between supporters and critics of the Mises-Hayek theory has not paid sufficient attention to the problem of differences in expectations and the market share in the allocation of production factors. I represent financially the effects that occur under the Austrian business cycle theory in the market of production factors as well as how economic imbalances occur when a central bank follows an expansionary policy and entrepreneurs have different expectations.

Keywords: Austrian business cycle theory, rational expectations, adverse selection, monetary policy

JEL Classification: E32, E51, E58