Risk and Business Cycles: New and Old Austrian Perspectives

by Cowen; Tyler

• ISBN13: 9780415169196
• ISBN10: 0415169194
• Format: Hardcover
• Copyright: 1998-01-28
• Publisher: Routledge

Summary

Risk and Business Cyclesexamines the causes of business cycles, a perennial topic of interest within economics. The author argues the case for the revival of an important role for monetary causes in business cycle theory, which challenges the current trend towards favouring purely real theories. The work also presents a critique of the traditional Austrian theory of the trade cycle. This controversial approach will ensure that the book is of interest to all those involved with business cycles, as well as Austrian economics.

Table of Contents

List of figures and tables	vii	(1)
Acknowledgements	viii
1 INTRODUCTION	1	(12)
The Problem	1	(5)
Some assumptions	6	(4)
New and old Austrian perspectives	10	(3)
2 A RISK-BASED THEORY IN REAL TERMS	13	(31)
Why a central role for risk?	13	(3)
Framework and assumptions	16	(8)
Induced increases in risk	24	(12)
Volatility and immediate business cycle contractions	36	(8)
3 A RISK-BASED THEORY IN MONETARY TERMS	44	(32)
Two basic monetary scenarios	44	(1)
What stylized facts does this chapter seek to explain?	45	(2)
How money affects investment when banks ration credit	47	(6)
Monetary policy issues	53	(7)
Transmission of cycles across currencies	60	(4)
Foundational issues: why does money matter?	64	(12)
4 BUSINESS CYCLES WITHOUT RATIONAL EXPECTATIONS: THE TRADITIONAL APPROACH OF THE AUSTRIAN SCHOOL	76	(39)
The traditional Austrian claim	76	(5)
Postulating especially costly errors	81	(2)
Inflation vs. inflationary volatility	83	(1)
Is inflation confused with changes in consumer savings?	84	(1)
Confusing inflation with changes in investment demand	85	(3)
Do interest rates provide useful information about consumer demand?	88	(2)
Do other signal extraction problems counteract the Austrian claim?	90	(2)
Does the term structure of interest rates signal inflation to investors?	92	(2)
Are the new investments sustainable?	94	(7)
Concluding remarks on the traditional Austrian theory	101	(1)
Comparison with the risk-based theory	102	(3)
Appendix A Forced savings	105	(2)
Appendix B The Ricardo effect	107	(1)
Appendix C Capital-intensity and the Cambridge debates	108	(7)
5 EMPIRICAL EVIDENCE	115	(35)
Introduction	115	(2)
Does money affect real interest rates?	117	(6)
Money, credit, and the bank lending channel	123	(8)
Does monetary policy induce sectoral shifts?	131	(3)
How does inflation affect stock returns?	134	(5)
Do monetary variables predict investment?	139	(3)
How do uncertainty and volatility affect investment?	142	(4)
Are capital-intensive investments more cyclical?	146	(2)
Concluding remarks	148	(2)
Bibliography	150	(17)
Index	167