Work detail

Austrian Business Cycle Theory and the Recession of 2007-2009 in the US Economy

Author: Mgr. Jakub Stračina
Year: 2012 - winter
Leaders: Mgr. Pavel Ryska MPhil
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 94
Awards and prizes:
Link:
Abstract: This paper aims to evaluate merits of the Austrian business cycle theory in explaining the 2001-2009
business cycle in the US economy. The theory postulates that a monetary shock upsets equilibrium in the
market for loanable funds and adversely influences coordination mechanisms of the economy. The
structure of relative prices is distorted and resources are misallocated as a result. The economy follows
an unsustainable investment trajectory inconsistent with the amount of available resources and with the
consumer preferences. When the inconsistencies are revealed, some of the investments are liquidated
and costly correction follows. After providing exposition of the theory and description of the US
economy in 2001-2009, the theory is confronted with the data. Although some deviations are conceded,
mainly in development of the labor market, analysis presented in the paper supports the Austrian
business cycle theory as a solid theoretical tool for explanation of the economic development throughout
the examined period. The theory exhibits its main strengths in accounting for development of relative
prices and linking them to conditions in the market for loanable funds.
Downloadable: Diploma Thesis of Stračina

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