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This dissertation explores four big topics in the Austrian economic theory. Chapter 1 elucidates the Austrian theory of capital. It introduces basic tools that are further used in the analysis of the business cycle. It also clarifies some misunderstandings in this theory. Chapter 2 investigates the evolution of the interest rate over the business cycle that is predicted by the Austrian theory of economic fluctuations. Chapter 3 examines the pure time preference theory. It shows with the help of a simple neoclassical graphical and mathematical apparatus that there is a fundamental flaw in this theory. It suggests that the notions of want and good must be explicitly separated, and it concludes that the time preference as well as the subjective exchange ratio between present goods and future goods may take on any value. Chapter 4 explores the business cycle dynamics in the economy with permanently rising natural output. Simple monetary policy rule that was designed to eliminate economic fluctuations is discussed in detail.

The aim of this thesis is to test the validity of The Austrian Business Cycle Theory (ABCT) for The Czech Republic between years 1996 and 2013 on quarterly data. In the first part, I concentrated on the definition of business cycle and theoretical premises of The Austrian Business Cycle Theory. In application part, I translated the first sector of hypothesis into dynamic models which were then estimated by method called Granger causality. The results show that monetary expansion in any of four previous quarters leads to decrease in monetary interest rate. Concerning mechanism of monetary expansion effect, the crucial are changes of the monetary interest rate in relation to the natural interest rate. I affirmed conformity of the ABCT: monetary expansion changes structure of interest rates and as a result of such shock there is an increase in roundabout productions. The difference between decrease in monetary interest rate and increase in roundabout productions is half a year. Other results were weaker. I have found statistically significant correlation, not a relation of determination, between decrease in monetary interest rate and increase in investments' expenditures. Quantitative methods did not show confirmation of predictions of the ABCT for structure of inflation. Second sector of hypothesis was incorporated into static model which I estimated by ordinary least squares. Results confirmed predictions of the ABCT that at the beginning of economic expansion there is increase in roundabout productions. Additionally, another prediction of the ABCT was confirmed: at the beginning of expansion there is an increase in producers' prices and there is a relative increase in consumers' prices from the second half of expansion. On average, an increase in investment expenditures during expansion was not confirmed. In summary, there is an excessive consumption and there is an excessive increase in production at the peak of economic fluctuation, the economy is pushed beyond its production possibilities frontier. Explanation of the ABCT was not invalidated for Czech economy.