Austrian business cycle theory: Empirical evidence Francis Bismans & Christelle Mougeot Published online: 28 February 2009 # Springer Science + Business Media, LLC 2009 Abstract The Austrian approach to business cycles has been seldom examined in econometric terms. This paper first reviews the essentials of that approach and the recent application of the Austrian business cycle theory in the economics literature. Quarterly data for Germany, USA, England and France, 1980:1 through 2006:1, are used to explore business cycle facts and relations between terms structure of interest rates, relative prices, composition of aggregate expenditure and real GDP. Results are consistent with the hypothesis of the Austrian business cycle theory that monetary policy shocks explain cycles. The changes in term structure of interest rates and composition of aggregate expenditure are large enough to explain changes in aggregate economic activity. Keywords Austrian business cycle theory . Panel data estimations JEL Codes E3 1 Introduction Business cycle theories demonstrate their power of explanation by hypothesis testing or by simulation in comparison to actual cycles. The “stylized facts” of cycles defined by Burns and Mitchell (1946) have become the behaviour that needs to be explained. The Austrian theory of business cycle, as originally presented by Mises (1912, 1936) and Hayek (1931), has been complemented by these authors in the different editions of Human Action (1949, 1963, 1966) by Mises and by Hayek in Rev Austrian Econ (2009) 22:241–257 DOI 10.1007/s11138-009-0084-6 F. Bismans (*) University Of Nancy 2, BETA, Nancy, France e-mail: Francis.Bismans@univ-nancy2.fr C. Mougeot University Paul Verlaine of Metz, BETA, Metz, France e-mail: christelle.mougeot@sciences-po.fr