Central Banking and Crisis Management from the Perspective of Austrian Business Cycle Theory
Gunther Schnabl
Abstract
This chapter analyzes the evolution and effects of central bank crisis management since the mid-1980s based on a Hayek-Mises-Wicksell overinvestment framework. It is shown that given that the traditional transmission mechanism between monetary policy and consumer price inflation has collapsed, asymmetric monetary policy crisis management implies a convergence of interest rates toward zero and a gradual expansion of central bank balance sheets. From a Wicksell-Hayek-Mises perspective, asymmetric central bank crisis management has contributed to financial market bubbles, decreasing marginal efficiency of investment, increasing income inequality, and declining growth dynamics. The economic policy implication is a slow but decisive exit from ultra-expansionary monetary policies.
Keywords: Economic Theory, Economics and Finance, Financial Economics, Macroeconomics and Monetary Economics, Mathematical Models.
JEL Codes: E520, E580, E630, F420.
Erschienen in
The Oxford Handbook of the Economics of Central Banking.