Page - 1 - in The Austrian Business Cycle in the European Context

1. Research motivation and overview The dating of business cycle turning points is still an important basis for economic policy decisions. Turning points mark the point of time at which booms end and recessions are overcome. Hence, they provide important information for initiating and terminating counter-cyclical policy action. Fiscal policy interventions suffer from recognition, legislation and execution time lags and also monetary actions take time to work their way through the econ- omy. In order to reap the benefits of stabilisation policy1, it is nec- essary to forecast turning points or at least to identify them timely. For both tasks, investigation into the history of turning points - with an exact dating scheme - is crucial, as it can serve as a bench- mark for setting up real time based models. Regular revisions of the economic data set, changes in methodol- ogy for measuring total economic output (like the introduction of the ESA regulation for European countries), the adoption of new statistical methods for price adjustments and further innovations make a regular update of business cycle analysis necessary also for past periods. Furthermore, economic research frequently brings forth new sophisticated methods for business cycle analysis, often supported by enhanced computational possibilities. Despite the fact that business cycle variations are mostly under- stood to be a demand-based phenomenon there is merit in study- ing them also on a sectoral basis. According to the classical defini- tion of the business cycle by Burns - Mitchell (l 946), business cycles are a type of fluctuation found in aggregate economic activity. This does not necessarily mean that the object of observation has 1 Examples for recent estimations of the costs of business cycle fluctuations are Reis (2005) and Del/as (2003). Barlevy (2004) gives a good overview about methods and empirical results.