The Upper Turning Point in the Austrian Business Cycle Theory

This paper studies a scenario - one of the six problems with Austrian Business Cycle theory raised by Hummel (1979) - that the ABCT literature has paid little attention. Will a constant rate of credit expansion necessarily lead to a boom-bust cycle? We conclude that this scenario has two potential outcomes, (1) a change in money demand brings the economy back towards equilibrium or (2) the economy will shift to sub-optimal but still sustainable path. We identify capital heterogeneity effects and the Ricardo effect as distinctly Austrian explanations for an upper turning point, even in a fiat money regime.

Keywords: Business Cycles, Austrian Business Cycle, Turning Point

JEL Classification: B53, E32

Suggested Citation: Suggested Citation

Evans, Anthony J. and Cachanosky, Nicolas and Thorpe, Robert, The Upper Turning Point in the Austrian Business Cycle Theory (December 27, 2019). AIER Sound Money Project Working Paper No. 2019-11, The Review of Austrian Economics (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3145284 or http://dx.doi.org/10.2139/ssrn.3145284