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Evidence Regarding the Structure of Production

May 3, 2004

by Larry Sechrest (Sul Ross University)

The Austrian approach to business cycles has seldom been examined in statistical terms. This paper first reviews the essentials of that approach. It then offers some simple regression results that seem to offer empirical support for several important Austrian propositions. Both business loans and industrial production are far more highly correlated with movements in monetary aggregates than with the rate of saving. Fluctuations in industrial production are largely explained by the changes in a trio of variables: money, departures of market interest rates from the natural rate, and relative prices. Finally, both M2 and the Austrian measure of the money stock are highly correlated with composite price indexes which include the prices of various real and financial assets in addition to the usual CPI and PPI. 

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