Page - 14 - in The Austrian Business Cycle in the European Context

14 about the same time in many economic activities, followed by similarly general recessions, contractions and revivals which merge into the expansion phase of the next cycle; this sequence of changes is recurrent but not periodic; in duration business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar characters with amplitudes approximating their own." As such a definition is far too imprecise for being a working base for a study; it has been the subject of several refinements and ex- tensions23. This definition, also called the classical definition of the business cycle, has been criticised not only for being imprecise concerning e.g. what constitutes the aggregate economic activ- ity and the pattern of these movements24, but also for being "measurement without theory"25. In order to study the classical business cycle, several economic time series deemed representing the aggregate economic activity are analysed, with trended and stationary time series (e.g. interest rates) both being observed within the same framework. It is not required to separate stationary movements from a trend, only some prior adjustment for working days and seasonal variations is recommended. But, without break- ing down changes in economic activity into trend growth and cy- clical movements it may be difficult to interpret the cycle, with problematic consequences for economic policy interventions. Apart from shortcomings in the theoretical definition, this method does not distinguish between different sources of economic growth and has lost some of its popularity26. If this definition of 23 Examples for this are Zarnowitz ( 1992), and Zarnowitz -Moore ( 1982). 2, See Harding -Pagan (2003). 2s See Koopmans ( 1947). 26 Whereas business cycle analysis with level data lost its scientific importance in the last decades, there are some recent studies by Harding - Pagan (2002), Hess - Iwata ( 1997) and Clements - Krolzig (2004) giving evidence for a kind of revival of such approaches.