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European Business Fluctuations in the Austrian Framework

Miia Parnaudeau ()

MPRA Paper from University Library of Munich, Germany

Abstract: The Austrian theory mainly deals with analyzing the effects of an increased credit offer on productive structures. In this respect, we propose to link long-term growth cycles to various short-term interest rate gaps. Are European Business Cycles affected when a fall in the money market rate disrupts agents’ expectations of inflation? Using the hypothesis that individual speculation is motivated by the difference between short-term real interest rates and their natural levels, we argue that Wicksellian interest rate gaps can account for a high proportion of long-term fluctuations in 4 European countries (Germany, France, Italy and Spain). We present specific dating methods and filters used in order to distinguish between short-term and long-term growth cycles. The Wicksellian incentives we constructed are then significantly linked to long-term business fluctuations. Under the hypothesis of adaptive expectations of inflation, our results are enhanced.

Keywords: European; Growth; Cycles; Inflation; Expectations (search for similar items in EconPapers)
JEL-codes: E43 E32 E31 E51 (search for similar items in EconPapers)
Date: 2008-08-16
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Published in Quarterly Journal of Austrian Economics 11 (2008): pp. 94-105

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