The Upper Turning Point in the Austrian Business Cycle Theory
16 Pages Posted: 21 Mar 2018 Last revised: 2 Nov 2018
Date Written: March 20, 2018
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