Page - 52 - in The Austrian Business Cycle in the European Context

52 4.2 Univariate determination of the business cycle This encompasses all approaches where one reference series is chosen (eventually after some kind of aggregation process) with- out recurring to its statistical properties but for its assumed theo- retical suitability. Harding -Pagan (2002) emphasised that the use of several time series in the NBER approach to represent the busi- ness cycle was motivated by a historical lack of aggregated pro- duction data (like the quarterly GDP) rather than by methodologi- cal considerations. Nowadays, where such time series are widely available, their use seems to be justified as a reference for the business cycle. First and foremost, GDP - as a compound measure of total pro- duction of goods and services - is expected to carry business cy- cle information. Without denying its suitability, this series includes by definition a lot of components expected to carry no business cycle variations like agriculture or public services. Theoretically, this should not be a problem if one is able to model or filter out pre- cisely only business cycle frequencies. Unfortunately, in practical life the empirical toolbox is far from being that perfect as to distin- guish precisely between different shocks and components influ- encing the time path of a series. Theoretical guidance for the process of selecting the reference series can be of great value. As described in chapter 2, GDP contains some sectors whose out- put can reasonably be expected to carry no business cycle infor- mation. Agriculture is more dependent on weather conditions than on business conditions. Boehm ( 1998) gives clear empirical evidence for the better suitability of production series adjusted for this primary sector component. We follow this approach in order to avoid the danger that such variations inhibit a proper identifica- tion process. Furthermore, taxes on production - like VAT and some excise duties - are at best coincident with regard to the cy-