Artificial Credit Expansion and Recession: An Analysis of the Brazilian Crisis of 2014-2016 Considering the Austrian Business Cycle Theory

Abstract

This study analyzes the Brazilian economic crisis of 2014-2016 through the lens of the Austrian Business Cycle Theory (ABCT). It is based on the hypothesis that the recession resulted from monetary manipulation and artificial credit expansion. Using a historical-empirical approach, key indicators such as money supply, credit, interest rates, GDP, employment, and inflation are examined. The results indicate that, starting in 2006, there was a strong credit expansion and a forced reduction in interest rates, which stimulated excessive investments in capital goods sectors, such as construction and manufacturing. From 2014 onward, the reversal of interest rates exposed the unsustainability of these investments, leading to GDP contraction and rising unemployment. The study concludes that the crisis can be explained by the ABCT, emphasizing the importance of this approach to understanding business cycles driven by expansionary monetary policies.