THE SUBPRIME CRISIS IN THE LIGHT OF THE AUSTRIAN BUSINESS CYCLE THEORY: CREDIT EXPANSION, DECISION ERRORS AND MORAL HAZARD

The first global financial crisis of the 21st century, known as the sub-prime
crisis, has led the economic profession to get back to two theories that prima
facie seem to match the evolution of events of the past years: Hyman Minky ́s
“financial instability hypothesis” and the Austrian business cycle theory (Ludwig
von Mises and Friedrich A. von Hayek), also named as endogenous monetary
business cycle theory. In contrast to the view of Minsky that regards the
capitalist system as inherently unstable, this article presents the endogenous
monetary business cycle theory as a theoretical and conceptual framework
that allows to differentiate between periods of sustainable economic growth
(sustained by a prior increase in real savings) and periods of unsustainable
growth (stimulated by the process of credit expansion in an environment of
loose monetary policy) that result in economic bubbles and business cycles.
This theoretical framework is then used to explain the current economic and
financial crisis.
Journal: 
28
Authors: 
Miguel A. Alonso Neira
Philipp Bagus
Juan Ramón Rallo Julián
Attached file: 

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