Deussen, Philipp;
Angeley, Max R;
(2024)
Extracting Price Signals from the Term Structure of Commodity and Credit Markets using Austrian Business Cycle Theory.
Procesos de Mercado: Revista Europea de Economía Política
, 29
(1)
pp. 247-280.
10.52195/pm.v21i1.931.
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Abstract
Austrian School economists first explained the significance of interest rates for the structure of production in time. Furthermore, they showed how manipulating the level of interest and the credit supply causes the business cycle (v.Böhm-Bawerk, 1891; v.Hayek, 1938; v.Hayek, 1941 and v.Mises, 1949). More recently, Austrian School economists have elaborated the relationship between the term structure of interest rates and the business cycle (Barnett and Block, 2009; Bagus and Howden, 2010; Bagus et al., 2018; Potuzak and Nemec, 2020; Alonso-Neira and Sanchez-Bayon, 2023). At the same time, market practitioners understand the potency of yield curve inversions as a predictor of future recessions as a result of experience and observation unrelated to Austrian Business Cycle Theory (ABCT). Reference textbooks (Stigum and Crescensi, 2007) explain that capital allocators are pricing in future cuts to the central bank discount rate, thus inverting the yield curve. This ignores the role of free-market price signals in credit, which result from supply and demand fundamentals, and are the link connecting ABCT to term structures.The term structure of commodities markets is also affected by actual or anticipated shortfalls in production over different time horizons. This is widely understood, perhaps because settlement by physical delivery is commonplace and tangible (Hull, 2022). Even though credit and derivatives may at first glance seem more abstract, the same underlying market principles are at work there. The theoretical foundations of and recent work on ABCT provide the necessary tools to analyse both markets through the same lens.
| Type: | Article |
|---|---|
| Title: | Extracting Price Signals from the Term Structure of Commodity and Credit Markets using Austrian Business Cycle Theory |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.52195/pm.v21i1.931 |
| Publisher version: | https://doi.org/10.52195/pm.v21i1.931 |
| Language: | English |
| Additional information: | This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Chemical Engineering |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10216721 |
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