Credit Cycles in a Neo-Austrian Economy
27 Pages Posted: 23 Nov 2005
This paper discusses the relationship between firms' access to credit market and business fluctuations in a sequential Neo-Austrian economy. Existence of cycles reflects a fundamental distortion in the intertemporal structure of production, that is a lack of coordination between utilization of productive capacity and construction of new machines. The role of credit market institutions is to sustain viability of the economy along an out-of-equilibrium transition. Allowing for a high degree of price flexibility turns out not to be a general response to boosts in capital accumulation and employment. When we focus on an irreversible, off-equilibrium dynamics the coordination of policy interventions becomes a relevant tool to govern fluctuations.
Keywords: Production processes, Cycles, Complex dynamics
JEL Classification: E23, E32, E37, E44
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