Business cycle theories and their relevance to the current global crisis

Ever since the onset of the recent crisis, monetary business cycle theories have started to regain their relevance and timeliness in explaining business fluctuations. According to these theories, it is monetary mismanagement that lies at the bottom of macroeconomic dysfunctions in the intertemporal allocation of resources. This paper presents the main theoretical implications of monetary business cycle models, regarding the causes of the cycle and the appropriate policies required to overcome recessions. In addition, we investigate whether, at the policy level, macroeconomists are indeed addressing the causes of the business cycle, in order to provide feasible solutions to end recessions.