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A fractal comparison of real and Austrian business cycle models

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  • Mulligan, Robert F.

Abstract

Rescaled range and power spectral density analysis are applied to examine a diverse set of macromonetary data for fractal character and stochastic dependence. Fractal statistics are used to evaluate two competing models of the business cycle, Austrian business cycle theory and real business cycle theory. Strong evidence is found for antipersistent stochastic dependence in transactions money (M1) and components of the monetary aggregates most directly concerned with transactions, which suggests an activist monetary policy. Savings assets exhibit persistent long memory, as do those monetary aggregates which include savings assets, such as savings money (M2), M2 minus small time deposits, and money of zero maturity (MZM). Virtually all measures of economic activity display antipersistence, and this finding is invariant to whether the measures are adjusted for inflation, including real gross domestic product, real consumption expenditures, real fixed private investment, and labor productivity. This strongly disconfirms real business cycle theory.

Suggested Citation

  • Mulligan, Robert F., 2010. "A fractal comparison of real and Austrian business cycle models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(11), pages 2244-2267.
    • Handle: RePEc:eee:phsmap:v:389:y:2010:i:11:p:2244-2267
    DOI: 10.1016/j.physa.2010.02.006
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    References listed on IDEAS

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    Cited by:

    1. Mulligan, Robert F. & Koppl, Roger, 2011. "Monetary policy regimes in macroeconomic data: An application of fractal analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(2), pages 201-211, May.
    2. William J. Luther & Mark Cohen, 2016. "On the Empirical Relevance of the Mises–Hayek Theory of the Trade Cycle," Advances in Austrian Economics, in: Studies in Austrian Macroeconomics, volume 20, pages 79-103, Emerald Group Publishing Limited.
    3. Mulligan, Robert F., 2017. "The multifractal character of capacity utilization over the business cycle: An application of Hurst signature analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 147-152.
    4. Mulligan, Robert F., 2014. "Multifractality of sectoral price indices: Hurst signature analysis of Cantillon effects in disequilibrium factor markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 403(C), pages 252-264.
    5. William Luther & Mark Cohen, 2014. "An Empirical Analysis of the Austrian Business Cycle Theory," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(2), pages 153-169, June.

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