The Natural Output and the Natural Rate of Interest

Pavel Potuzak
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Pavel Potuzak: Prague University of Economics and Business

Chapter Chapter 8 in Austrian Theory of Capital and Business Cycle, 2022, pp 133-141 from Springer

Abstract: Abstract The core Austrian model implicitly assumes that the economy operates at its potential (natural) level of output. This chapter relaxes this assumption. The consequences of monetary expansion are analysed in an economy with unemployed resources. This chapter also shows that a business cycle can negatively affect potential output in the long run, due to misallocation of capital and its subsequent partial destruction. In addition, this chapter discusses the reasons for instability of the natural rate of interest over the business cycle. Austrian theory predicts that money may not be neutral even in the long run.

Keywords: Natural output; Natural rate of interest; Non-neutrality of money (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-18728-5_8

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DOI: 10.1007/978-3-031-18728-5_8

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