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, Barnett, and Block (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
JournalReview of Austrian Economics
StatePublished - Jan 2011

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