The Austrian Business Cycle - A Characterization

Sandra Leitner

No 2007-17, Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria

Abstract: Economies constantly undergo significant cyclical variations of distinct pattern and origin. In duration, business cycles vary from more than one to ten or twelve years, and comprise a boom, or expansionary phase, followed by a recession, or contractionary phase. Such cycles recur at unpredictable intervals and do not last for a fixed length of time. Recessions are characterized by high unemployment and low productivity with highly asymmetric short but sharper cycles than expansions. The purpose of this paper is to provide an overall picture of the Austrian business cycle covering the period 1970 until 2004 by studying the cycle’s “stylized facts” in terms of volatility, co-movements and persistence. The notion of stylized facts stems from the renowned work of Burns and Mitchell (1946) intending to provide and interpret model-free observations of macroeconomic variables’ behavior. Additionally potential hypotheses as to the source of observed cycles will be tested, pointing at the significant role supply-side shocks like technology play in triggering observed business cycles. This paper is organized as follows: Section I describes the methodology applied to extract the cyclical component from observed macroeconomic data. Section II gives a brief description of business cycle regularities observed in industrialized countries, while section III applies the empirical test to the economy case Austria and discusses the results on the basis of the data’s second moments. Section IV attempts to identify potential sources of observed cycles, focusing on prices and the real wage rate as discriminatory factors. A discussion of the baseline Real Business Cycle Model’s basic characteristics as well as resemblances with the observed data represents the focal points of section V while section VI concludes.

Date: 2007-10
New Economics Papers: this item is included in nep-eec and nep-mac
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