Central Banking and Crisis Management from the Perspective of Austrian Business Cycle Theory

Gunther Schnabl

No 6179, CESifo Working Paper Series from CESifo

Abstract: The paper analyses the evolvement and effects of central bank crisis management since the mid 1980s based on a Hayek-Mises-Wicksell overinvestment framework. It is shown that, given that the traditional transmission mechanism between monetary policy and consumer price inflation has collapsed, asymmetric monetary policy crisis management implies a convergence of interest rates towards zero and a gradual expansion of central bank balance sheets. From a Hayek-Mises-Wicksell perspective asymmetric central bank crisis management has contributed to financial market bubbles, decreasing marginal efficiency of investment, increasing income inequality and declining growth dynamics. The economic policy implication is a slow but decisive exit from ultra-expansionary monetary policies.

Keywords: Hayek; Mises; Wicksell; monetary overinvestment theory; asymmetric monetary policy; financial crisis; Goodhart's Law; marginal productivity of investment; secular stagnation (search for similar items in EconPapers)
JEL-codes: E52 E58 E63 F42 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6179

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