Journal for Development and Leadership
The Austrian Theory of the Business Cycle (ABCT) proposes that the roots of the current global financial crises – and recessions in general – are to be found in the actions of central banks through credit expansion and manipulation of interest rates. ABCT argues that central banks manipulate interest rates causing them to fall below the natural level leading to credit expansion and malinvestments.
The purpose of the article is to provide an explanation of how monetary policy (via setting artificial interest rates) causes longer term investments at the expense of shorter term investments. Granger causality testing and a Vector Error Correction Model (VECM) are used in the econometric analysis. The findings provide empirical evidence of ABCT in explaining fluctuations in South African economic activity. Policy prescriptions relating to the central bank are given.
Keywords: Austrian Business Cycle, Econometrics
Tel: +27 (0) 41 504 1111
Fax: +27 (0) 41 504 2574 / 2731
PO Box 77000, Nelson Mandela Metropolitan University
Port Elizabeth, 6031, South Africa
Privacy statement Mail & Portals BEE & Tax Certificate PAIA ISPA FAQ NMMU Sitemap A - Z Index WCMS