Monetary policy as bad medicine: The volatile relationship between business cycles and asset prices

Monetary policy as bad medicine: The volatile relationship between business cycles and asset prices Austrian business cycle theory has become an important point of focus in controversial mainstream discussions regarding the role of asset prices in monetary policy. In this article, the relation between asset prices and the Austrian business cycle theory is examined. The analysis focuses on how central banking supports optimism, resulting in the redirection of entrepreneurial activity and knowledge via asset price bubbles. The crucial role of credit expansion for asset price booms is also analyzed. Following this analysis, the implications for monetary policy are deduced. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Austrian Economics Springer Journals

Monetary policy as bad medicine: The volatile relationship between business cycles and asset prices

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Publisher
Springer US
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Economics; Public Finance; Political Science; History of Economic Thought/Methodology
ISSN
0889-3047
eISSN
1573-7128
D.O.I.
10.1007/s11138-008-0042-8
Publisher site
See Article on Publisher Site

Abstract

Austrian business cycle theory has become an important point of focus in controversial mainstream discussions regarding the role of asset prices in monetary policy. In this article, the relation between asset prices and the Austrian business cycle theory is examined. The analysis focuses on how central banking supports optimism, resulting in the redirection of entrepreneurial activity and knowledge via asset price bubbles. The crucial role of credit expansion for asset price booms is also analyzed. Following this analysis, the implications for monetary policy are deduced.

Journal

The Review of Austrian EconomicsSpringer Journals

Published: Apr 29, 2008

References

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