Work detail

Austrian Business Cycle Theory: //A Polemic with the Information Paradigm by Joseph Stiglitz

Author: Bc. Martin Forejt
Year: 2016 - summer
Leaders: MPhil Pavel Ryska Ph.D.
Work type: Bachelors
Language: Czech
Pages: 75
Awards and prizes:
Abstract: Empirical analysis remains the predominant study method of business cycles. In contrast to this, our
thesis presents the theoretical comparison of two economic approaches. The first is the Austrian business
cycle theory, building on the theory of capital, Cantillon effect and fractional reserve banking. The
second approach is the Greenwald-Stiglitz model of business cycles, building on the imperfect
information on equity markets and risk averse behavior of managers. At first, we describe in detail both
these theories and then we critically examine them. After analyzing the Greenwald-Stiglitz model, we
come to reject it, but we reject it only as the main basis for our understanding of economic cycles. Its
main weakness is the large number of restrictive assumptions, some of which are only slightly justified.
At the same time, we do not reject all the conclusions to which it comes. In the next section, we also
critically examine the Austrian school, particularly its view on employment in the years of economic
boom. We also pay attention to the Austrian contribution to the debate on economic calculation. In
conclusion, we mention the possibility of supplementing Austrian business cycle theory with GreenwaldStiglitz
model. The reason is, that the Austrian school is unable to explain why the economical
downturns have the persistance that they have. Because this persistence is in Greenwald-Stigltiz model
expalined on a more exact level, we use this as a main source of explanation of persistence.


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