Der Apriorist - Abstracts 06. Oct. 2010

An Empirical Investigation of the ABCT

by Robert F. Mulligan

Tags: business cycle theory
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Mulligan, Robert F. An Empirical Investigation of the ABCT. The Quarterly Journal of Austrian Economics 9.2 (SUMMER 2006): 69–93.

Quotes: This paper explicitly tests the main assertion of Austrian business cycle theory, that lowering the interest rate below sustainable market levels raises real consumable output and investment in the short run, but lowers both over the long run. Credit expansion results in an unsustainable short-run increase in total output, consumption and investment, but a long-run decrease in all three, manifested in the historical data as a recession.

The rest of the paper is organized as follows. The theoretical basis for the paper is developed in section 2. Section 3 reviews recent applications of Austrian business cycle theory in the economics literature. Data sources are documented in section 4. Section 5 develops the methodological approach applied in section 6. Section 6 presents and interprets the empirical work, consisting of an error-correction model of real output as measured by real consumptionexpenditures. This section presents tests for cointegration followed by estimates of the error-correction model. Concluding comments are presented in section 7.

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