Econometric Evidence Supporting Capital Based Boom & Bust Macro

Expect to see a lot more papers like these:

Francis Bismans and Christelle Mougeot, “Austrian Business Cycle Theory:  Empirical Evidence”, Review of Austrian Economics, Vol. 22, No. 3, (Sept.) 2009, pp . 241-257 (subscription pdf).


The Austrian approach to business cycles has been seldom examined in econometric terms. This paper first reviews the essentials of that approach and the recent application of the Austrian business cycle theory in the economics literature. Quarterly data for Germany, USA, England and France, 1980:1 through 2006:1, are used to explore business cycle facts and relations between terms structure of interest rates, relative prices, composition of aggregate expenditure and real GDP. Results are consistent with the hypothesis of the Austrian business cycle theory that monetary policy shocks explain cycles. The changes in term structure of interest rates and composition of aggregate expenditure are large enough to explain changes in aggregate economic activity.

Anthony M. Carilli and Gregory M. Dempster, “Is The Austrian Business Cycle Theory Still Relevant”, Review of Austrian Economics, Vol. 21, No. 4, (Dec.) 2008, p.  (subscription pdf).


We compile econometric evidence from the latest available time series data on US savings, consumption, interest rates, and gross domestic product (GDP) to test a reduced form model of the Austrian Business Cycle Theory (ABCT). We build indexes that mimic the gap between the market and natural rates of interest and, using this gap as a proxy for expansionary policy, uncover evidence that changes in reserves lead to changes in real GDP in the manner predicted by ABCT. In addition, we establish that the pattern of endogenous changes in output, from positive to negative, also conforms to the predictions of ABCT. Thus, by incorporating improvements with regard to data and methods over the few other examples of econometric work in this area, we provide more distinctive evidence on ABCT relative to competing theories of the business cycle than has been done previously.

Robert Mulligan, “An Empirical Examination of the Austrian Business Cycle Theory”, Quarterly J. of Austrian Economics, Vol. 9, No. 2.  (Summer, 2006), pp. 69-93.  (pdf)

James Keeler, “Empirical Evidence on Austrian Business Cycle Theory”, Review of Austrian Economics, Vol. 14, No. 4.  (Dec. 2001).  pp. 331-351.

And note well, even “mainstream” Keynesian economists like Mark Thoma are calling for this sort of empirical research:

I am not as pessimistic as [those who believe] that we will never be able to do predict the course of the economy, but it will require that we begin to better understand how pressures build within the macroeconomic system, how to measure and monitor these pressures (e.g. measures such global and sectoral imbalances or price rent ratios ..), and ultimately how to relieve the pressures when they begin to build to threatening levels.

But the big question is, will “mainstream” economists like Thoma continue to blackball economists who put the words “Austrian” or “Hayek” in the body of their econometric research?

4 comments to Econometric Evidence Supporting Capital Based Boom & Bust Macro

  • Pierre Bagat

    I just tried to look at the first two papers, but – lacking a subscription to the Review of Austrian Economics – was unable to locate an ungated version of any of them on the net. For me this is not an unusual experience. While most “mainstream” articles are also available in a free version (NBER, CEPR or another working paper series and/or on RePEc) this is not true for the “Austrian” literature (and, by the way, also not for a good part of the econophysics literature). I wonder whether this is just a coincidence. An early and publicly available version of a paper leads not only to a wider dissemination of its results but might also contribute to real-time discussions and criticisms, thereby improving the quality of the work. In the realm of scientific publications private property is not a virtue but a vice.

  • Not only is it not available ungated, but it’s also not even available to those with university subscriptions (or at least not Georgetown’s), since they make you wait a couple of months before it’s available on Lexis Nexis. Really annoying, and definitely not helping the Austrians’ case. And a bit ironic, considering I don’t think a lot of Austrian economists even believe in government-enforced copyright.

  • Economist

    The article is available on along with other austrian articles. For free I may add.

  • Hey,
    Thank you for the link!

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