E32 - Business Fluctuations; CyclesReturn

This study argues that increasing malinvestment in an economy raises the actual credit risk but not the calculated credit risk until the onset of a recession. To this end, I analyse the relationship between credit risk and malinvestment in Germany, Spain, and Italy using a credit risk indicator based on nonfinancial corporate bond yields and annual loan growth for nonfinancial corporations from January 2004 to November 2014 on a monthly basis. The study also analyses Italy using sectorial non-performing loans data since Italy was the most affected by malinvestment among the countries in question. As a result, this paper suggests that banks should include malinvestment as a subcomponent of credit risk and recognize that the actual credit risk is higher than the calculated credit risk during artificial booms. This recommendation also underscores that malinvestment should be analysed more empirically.

The aim of this paper is to critically assess Austrian Business Cycle (ABC) theory. Its foundation was laid in Theory of Money and Credit (1912) by Ludwig von Mises, which F. A. Hayek elaborated in more detail later on in his Prices and Production (1935). We argue that assumed coordination between consumers and producers, that is, the case, in which the time preference of consumers and investment plans of producers would be in unison, does not guarantee that the structure of production will be in equilibrium; even in an economy with a constant money supply, i.e. an economy with one hundred per cent reserve banking. We show there may be real factors that might prevent the structure of production from being in equilibrium even though the time preference of consumers might have been in unison, in some point in time, with investment plans of producers. Finally, we shall argue the Hayek's condition, which states that increases in the money supply have to increase at "a constantly increasing rate", does not hold if one should take into account the technological progress.

Paper deals with the analysis of investment in the business cycle. Analysis is based on available quarterly data for the Czech Republic since 1st quarter 1999 till 1st quarter 2014. It concludes that investment on the macroeconomic level is highly pro-cyclical component of demand, which fluctuates in the business cycle more than GDP. Investment of individual institutional sectors, which together forms investment of the national economy, behaves in the business cycle highly differentiated. Investment of households, for example, develops the same way as GDP and its volatility is quite low. Investment of government institutions, on the contrary, is strongly volatile, and in addition, develops slightly anti-cyclically. It applies therefore, that cyclical component of investment of the national economy is very heterogeneous.