HET Monetary Theories of the Cycle In business cycle theory, the Continental tradition has tended to be to emphasize that it is "real" phenomena -- technological change in particular -- that pushes the economy out of equilibrium and that it is the consequent unbalanced structure of the real economy that drives the cycle. When grafting a monetary theory a cycle theory, one must already have some sort of idea of how the cycle process works itself through. Back. A Money and Cycle Traditions. In business cycle theory, the Continental tradition has tended to be to emphasize that it is "real" phenomena.
Essays in Monetary Theory and Policy On the Nature of Money 8. It is important to note that, for the Continental tradition, it is a of the economy at a point in time, that drive the cycle In contrast, the Anglo-American tradition is to focus on how "external" things like psychology or credit, can "unbalance" the economy and drive the cycle. In both these theories, credit plays a role -- in particular, the starting point for all of them is Knut Wicksell's insht on the relationship between the "natural" rate of interest and the "money" rate of interest. This is where the division between the Continental and Anglo-Ameican traditions in cycle theory is useful way of dividing the monetary cycle theories as well. Consequently, for Hawtrey, the economy is a "single-sector" entity and the cycle is driven by vertical unbalancedness -- miscoordination across time (caused by money, of course). In an important sense our task throughout this monograph has been to develop a theory of the nature of money. When asked “What is money?