Seite - 41 - in The Austrian Business Cycle in the European Context

41 4. Identifying the business cycle After extracting business cycle variations from the underlying time series, either directly by band-pass filters, by explicit modelling in an unobserved components model or indirectly by removing spe- cial components, it has to be decided which of the results (or which combination of them) should represent the business cycle. According to Burns - Mitchell's 11946) definition, the business cycle is a type of fluctuation found in aggregate economic activity. As they refrained from clarifying what this aggregate economic ac- tivity should be, several options are open. Nowadays, there are ready-made statistics available, which measure some sort of aggregated economic activities. These are weighted by their economic significance in monetary units. Exam- ples are GNI, GDP, gross value added and several aggregates of specific sectors. This variety of aggregates poses the problem to determine which of them is best suited for studying the business cycle. This decision in favour of a certain time series can be made on the basis of theoretical considerations, which is called the ad- hoc method in the present study. Another possibility is to construct a measure of such an "overall economic activity" out of several economic time series as a kind of index, with a special weighting scheme applied to the time series. Doing this, one has the possibility to include those series which are considered to carry a large content of business cycle information. Furthermore, the weights for their aggregation can be chosen freely. This is of great advantage if series are to be analysed which are not measured in monetary terms, like unemployment rates or interest rates.