Three features of Hayek's trade-cycle theory stand out. Second, it includes a self-reversing process to a monetary change and so couples the short run with the long run. Third, it incorporates a theory of capital. Economic events can only be explainable in terms of 'individual human actions'. According to Cochrane and Glahe, the role of money and time are two basic elements in Hayek's trade-cycle theory.
Money injects indirect exchange and time involves uncertainty and expectations in a dynamic process.
Hayek, like Keynes, followed the Wicksellian transmission mechanism regarding saving, investment, and interest rates. Whereas Keynes expected the public's liquidity demand and the banking system's practices to maintain the money rate of interest, noted above, Hayek proceeded from an expansion of money credit that would result in a money rate of interest below the equilibrium rate. The consequence would be an increase in investment as entrepreneurs first respond to misleading signals in the price system, which would likely move the economic system away from its long-run equilibrium. By injecting a theory of capital, which involves both the structure and the stages of production, Hayek expected this additional investment to change the quantity and the form of investment. Then, as spending in the economy proceeds to the several factors of production, consumer incomes would increase.