Page - 23 - in The Austrian Business Cycle in the European Context

23 3.2.4 The trend The deviation cycle approach requires a separation of the busi- ness cycle fluctuations from the trend component of a series. There is no definition of the properties that such a trend should possibly have. There is consensus only about the residual part of time series after de-trending. Cyclical variations should be second order stationary. show some autocorrelation characteristics and are expected to have a cycle frequency of some years. Accord- ing to several authorsJ9, this type of cycle is best mirrored in the capacity utilisation of enterprises, which varies auto-regressively without any trend. Therefore. the analysis of business cycles is in most cases based on figures showing these patterns of changing economic activity. As there is no consensus concerning the shape of the trend, there exists a plethora of approaches to de-trending. Unfortunately, ac- cording to Canova ( 1998). these different methods of de-trending or direct business cycle extraction can give substantially different results for dating the business cycle. Considering this, various methods of de-trending will be used in the present study. The se- lection of these techniques will be based on their popularity as well as their appropriateness for analysing the Austrian business cycle. In order to judge on the latter. a theoretical evaluation together with reported empirical features of the different approaches will be presented. 3.2.4.1 Deterministic trend Due to its simplicity, this approach was historically very popular in business cycle analysis. A linear (or log-linear) trend - in most cases obtained by fitting a regression line - was deducted from the time 39 See e.g. Tichy (1994) orBreuss (1984).