Central Banking and Crisis Management from the Perspective of Austrian Business Cycle Theory

42 Pages Posted: 15 Dec 2016

See all articles by Gunther Schnabl

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Date Written: November 15, 2016

Abstract

The paper analyses the evolvement and effects of central bank crisis management since the mid 1980s based on a Hayek-Mises-Wicksell over-investment framework. It is shown that, given that the traditional transmission mechanism between monetary policy and consumer price inflation has collapsed, asymmetric monetary policy crisis management implies a convergence of interest rates towards zero and a gradual expansion of central bank balance sheets. From a Hayek-Mises-Wicksell perspective asymmetric central bank crisis management has contributed to financial market bubbles, decreasing marginal efficiency of investment, increasing income inequality and declining growth dynamics. The economic policy implication is a slow but decisive exit from ultra-expansionary monetary policies.

Keywords: Hayek, Mises, Wicksell, monetary overinvestment theory, asymmetric monetary policy, financial crisis, Goodhart’s Law, marginal productivity of investment, secular stagnation

JEL Classification: E520, E580, F420, E630

Suggested Citation

Schnabl, Gunther, Central Banking and Crisis Management from the Perspective of Austrian Business Cycle Theory (November 15, 2016). CESifo Working Paper Series No. 6179. Available at SSRN: https://ssrn.com/abstract=2885839

Gunther Schnabl (Contact Author)

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

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