The Mises-Hayek business cycle theory, fiat currencies and open economies

Is the Virus of International Macroeconomic Interventionism Infectious? An ABCT Analysis

“…In contrast, Hayek (1989) analyzed international aspects of three possible monetary regimes, but assumed that each country adopted a similar policy (commodity, national reserve, or fiat). Similarly, Cachanosky (2014) is quite explicit that the analysis in that paper applies to fiat currencies. Third, we introduce the role of economic calculation, which receives no explicit attention in any of the recent work (though economic calculation certainly underlies the coordination failures described by Bilo (2018)).…”

“…Second, the exchange rate channel operates as monetary inflation in country B devalues B's currency relative to that of country A. Ceteris paribus, net exports in B rise, stimulating production in B, and in country A net exports decline, suppressing production in A. Cachanosky (2014), and Bilo (2018) apply this argument to the heterogeneous view of capital present in Austrian capital theory.…”

“…Second, non-specific resources initially placed in less export-oriented industries may move into those that are more export-oriented, for similar reasons. This point is emphasized in Cachanosky (2014). Changes in production and investment in the two countries will move along the lines of the worldwide capital structure.…”

“…E.g., under which regime was the ABC more powerful? Cachanosky (2014) provides a good resource for those considering empirical work in relating Austrian business cycles to exchange rate policy regimes. 25 A third suggestion is to reconsider the experience of those countries that maintained the gold standard during the Great Depression relative to those that abandoned it.…”

“…Hoffman and Schnabl (2011) focus primarily on the interest rate channel. Cachanosky (2014) adds exchange rates to the analysis, and Bilo (2018) also focuses on these two channels. We add the asset price channel and credit channel as well.…”