ABSTRACT
Empirical evidence, taken alone, cannot conclusively confirm a business cycle theory. Pieces of positive evidence can be given alternative interpretations, or may provide support for more than one theoretical explanation. The evidence, in some clear-cut cases, can conclusively falsify a theory, but even negative evidence usually admits of competing interpretations. Whether or not we accept or reject a business cycle theory therefore depends upon a variety of considerations, including logical consistency, the reasonableness of the assumptions, theoretical persuasiveness, and the ability of the theory to account for stylized facts. Statistical evidence provides only one piece of the relevant picture. Nonetheless the evidence should strongly influence our estimation of the plausibility of a theory, and for that reason I examine the statistical evidence of relevance to investment-based and Austrian business cycle theories.
