Page - 85 - in The Austrian Business Cycle in the European Context

85 • Gross value added (GV A) as the sum of all sectors, but excluding agriculture and forestry. • Real GDP As described in chapter 2, for the euro area only the GDP series was available, which for the purpose of the dynamic factor model was corrected for German and Austrian GDP, in order to avoid a bias. 8.2 Determination of the reference business cycle After filtering all time series in order to extract the information con- tent concerning their business cycle variations, the business cycle itself has to be determined. According to Burns - Mitchell ( 1946), the latter is a type of fluctuation found in aggregate economic activity, which would justify the use of GDP as the most compre- hensive indicator of aggregate economic activity. But GDP in- cludes also activities which are not influenced by business cycle movements. This is the case for agriculture and forestry, which are more dependent on weather conditions than on overall eco- nomic dynamics102• Furthermore, it comprises taxes less subsidies on production, which theoretically show at most a lagged co- movement with the business cycle 1°3• For all these reasons, gross value added of all sectors without agri- culture and forestry seems to be closest to the aggregate eco- nomic activity in the sense of Burns - Mitchell ( 1946). Therefore, business cycle variations found in that series will represent the ref- 102 Theoretically, higher economic activity can lead to more slaughtering or more tree cuttings as a reaction to rising demand, but according to the national ac- counts system this represents only a depletion of inventories and not production, the latter being measured by the growth in the number of trees and animals, in- stead. 103 This potential lagging property stems from the ESA 95 convention which requires most taxes to be recorded as lagged cash receipts in national accounts.