Austrian Business Cycle Theory in Light of the Financial Crisis: The Paradox of Prediction

38 Pages Posted: 2 Nov 2013

Date Written: October 31, 2013

Abstract

This article argues that although economic science is not well equipped to make predictions, it is a myth to claim that “no one” saw the financial crisis coming – the economic events that we have experienced were possible to navigate.

Section 1 surveys those who saw it coming, demonstrating that the financial crisis was visible and predictable at the time of the peak. Section 2 surveys how the Austrian theory has been treated in the mainstream media, from the period of the “great moderation” through to Summer 2010. Section 3 outlines the “stylised facts” of an Austrian-style “crack up boom” and applies it to the experience of the financial crisis. We conclude with brief commentary on some contemporary debates.

Suggested Citation

Evans, Anthony J., Austrian Business Cycle Theory in Light of the Financial Crisis: The Paradox of Prediction (October 31, 2013). Available at SSRN: https://ssrn.com/abstract=2348056 or http://dx.doi.org/10.2139/ssrn.2348056

Anthony J. Evans (Contact Author)

ESCP Business School ( email )

537 FINCHLEY ROAD
LONDON, NW37BG
United Kingdom

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