Hayek's Theory of Business Cycles: Theory That Will Remain Obscure
34 Pages Posted: 22 Mar 2014
Date Written: March 20, 2014
Hayek’s theory of business cycles has been criticized for its unfeasible policy prescriptions, weak empirical support, and lack of technical rigor. Although the theory can be defended against these criticisms, it violates the rational expectations hypothesis, a criterion by which economists tend to judge the quality of economic arguments. Since Hayek and his followers failed to remedy or justify the violation, the theory cannot capture the interest of the economics profession today. To change this outcome, Hayek’s theory either needs a satisfactory restatement, or it has to wait until economists change the criteria for judging the quality of arguments.
Keywords: business cycle, expectations, Hayek
JEL Classification: B22, E32
Suggested Citation: Suggested Citation