Illustrating the importance of Austrian business cycle theory: A reply to Murphy, Barnett, and Block; A call for quantitative study

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Abstract

Murphy et al. (2009) criticize Young's (2005) test of Austrian business cycle theory (ABCT) using US industry-level quarterly job reallocation data and the federal funds rate as a monetary policy indicator. I argue that not only are Murphy et al.'s specific criticisms misguided; more importantly, they all but completely rule out the type of empirical study that Young (2005) advocates: specifically, one that (1) is quantitative and distinguishes between statistical and economic significance and (2) attempts to exploit a hypothesis that is both a prediction of ABCT and not a prediction of competing monetary theories of the cycle. I argue that empirical studies embodying (1) and (2) are critical to ABCT as a research program. Furthermore, I review the existing econometric studies of ABCT from the last 10 years and conclude that there is much room for improvement along these lines.

Original languageEnglish
Pages (from-to)19-28
Number of pages10
JournalReview of Austrian Economics
Volume24
Issue number1
DOIs
StatePublished - Mar 2011

Keywords

  • Austrian business cycle theory
  • Econometric methodology

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