Money, Capital, and Business Cycles
Major Professor: Tyler Cowen, PhD, Department of Economics
Committee Members: Peter Boettke, Garett Jones
Carow Hall, #01E
July 24, 2014, 01:00 PM to 09:30 AM
Chapter 1, “New Perspectives on the Old Austrian Business Cycle Theory,” subjects the Austrian capital-based macroeconomics to a variety of shocks and graphs the resulting time paths of key variables. Since accounts of the Austrian business cycle theory can be difficult to follow, Chapter 1 more clearly and concisely depicts exactly what occurs as an Austrian-variety business cycle unfolds.
Chapter 2, “Austrian Capital Theory and Neoclassical Capital Theory as Analytical Substitutes,” investigates how different the basic Austrian and neoclassical capital theories truly are. An Austrian-neoclassical model is constructed by replacing the capital-based macroeconomics model’s Hayekian triangle, with the Hall-Jorgenson capital theory. These two models are then subjected to a discount rate shock. Since both models produce similar results following the shock, it implies that the two capital theories are analytical substitutes.
Chapter 3, “There Ain’t No Such Thing as a Soft-Landing,” subjects the Austrian-neoclassical model, developed in Chapter 2, to a monetary shock. It finds that even when agents have rational expectations and the world is described by a neoclassical capital theory, an Austrian-variety cycle of boom and bust still occurs following a period of loose monetary policy.
Overall, this dissertation suggests that Austrian capital theory may be sufficient, but is not necessary to generate a cycle of boom and bust. The dissertation also indicates that the Austrian theme of boom and bust deserves more serious consideration as it holds even when the world adheres to rational expectations and is described by a neoclassical theory of capital.