Quarterly Journal of Austrian Economics
Disaggregating the Credit Expansion: The Role of Changes in Banks' Asset Structure in the Business Cycle
ABSTRACT: The aim of the article is to refine the Austrian business cycle theory by discussing the effect of changes in banks’ asset structure on the business cycle. I disaggregate the process of credit expansion in the spirit of Cantillon’s dynamic analysis of how the new money enters the economy, pointing out that banks can conduct the credit expansion not only by granting loans, but also by purchasing investment securities. I examine distinct results of those two methods and differences resulting from the type of purchased security or granted loans (the so-called secondary effects of business cycle). Based on my analysis, I propose a preliminary classification of business cycles.
KEYWORDS: Austrian business cycle theory, bank’s asset structure, Cantillon effect, credit expansion, secondary effects of business cycle
JEL CLASSIFICATION: B53, E32, E44, E51, G21, N12
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Cite This Article
Sieroń, Arkadiusz, "Disaggregating the Credit Expansion: The Role of Changes in Banks' Asset Structure in the Business Cycle," Quarterly Journal of Austrian Economics 18, no. 3 (Fall 2015): 247–72.