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Austrian Business Cycle Theory: examination of theory and evidence

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en
dc.contributor.author Merinen, Jukka
dc.date.accessioned 2015-11-04T13:21:20Z
dc.date.available 2015-11-04T13:21:20Z
dc.date.issued 2015
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/18441
dc.description.abstract The purpose of this study is to examine the Austrian Business Cycle theory and the state of empirical evidence for it. In the theoretical part of the study, the Austrian theory of the business cycle based on the neo-Austrian diagrammatical synthesis was compared to New Keynesian short-run IS-LM and medium-run AS-AD models by studying policy responses. The policy responses to an in-crease in saving rate and increase in government deficit spending were similar. The policy response to monetary expansion was different between the theories. In New Keynesian theo-ry, monetary expansion can be used as a stabilization instrument. In Austrian theory, it causes an unsustainable investment that is the cause of the business cycle. The result of literature study on the previous empirical studies on Austrian business cycle theory was that there has not been a hypothesis that could be used to statistically test distinc-tively the Austrian business cycle theory. Currently there is no credible empirical evidence for the theory. In the empirical part of the thesis, the relationship between consumption, investment and monetary policy was studied using Vector Error Correction Model (VECM). Spread between short and long term interest rates was used as a proxy for the monetary policy. The model was estimated using U.S. data from 1963 to 2014. The impulse-response functions of the VECM model indicated that a monetary policy shock causes an economic stimulus that peaks after 20 quarters for consumption and after 16 quarters for investment. The results of the empirical study are consistent with both Austrian and New Keynesian theory. en
dc.format.extent 64
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.title Austrian Business Cycle Theory: examination of theory and evidence en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Taloustieteen laitos fi
dc.contributor.department Department of Economics en
dc.subject.keyword Austrian school of economics
dc.subject.keyword Austrian business cycle theory
dc.subject.keyword capital
dc.subject.keyword VECM
dc.identifier.urn URN:NBN:fi:aalto-201511055012
dc.type.dcmitype text en
dc.programme.major Economics en
dc.programme.major Kansantaloustiede fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon taloustieteet
dc.subject.helecon economic science
dc.subject.helecon Itävalta
dc.subject.helecon Austria
dc.subject.helecon tutkimus
dc.subject.helecon research
dc.subject.helecon suhdanteet
dc.subject.helecon business cycles
dc.ethesisid 14115
dc.date.dateaccepted 2015-06-08
dc.location P1 I
local.aalto.openaccess yes
local.aalto.idthes 14115

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