Business cycles in open economies: A comment

Abstract

a recent paper in this journal, P. Brandner and K. Neusser [1992] presented some astonishing empirical findings with regard to the characteristic properties of the business cycles in West Germany and Austria and their interrelatedness since the early 1960s. Following the real business cycle literature, they try to establish some kind of statistical relations among the fluctuation of those variables encountered in most macroeconomic models. They use the popular Hodrick-Prescott filter [Hodrick and Prescott, 1980] for extracting the 'cyclical dynamics' of the leading macroeconomic time series. Standard deviations and autocorrelations are used to capture some basic statistical properties of the business cycle fluctuations. Standard correlation tests are applied to evaluate the degree of cyclical comovements within and across the countries. This should help, they state, to shed some new light on the transmission of shocks. As for the general characteristics of the Austrian business cycle, two findings of this study are quite remarkable and do really stand out of the pack. First, quarterly real private consumption expenditure is estimated, for the period from 1964.1 to 1989.4, to be more volatile than the GDP. The standard deviation of the stationary component of private consumption is said to be 1.47 percent, that of GDP only 1.18 percent. Second, the Austrian output is supposed to lead the German one. A similar pattern is said to emerge with respect to investment and price level. The authors are quick to give an explanation for the latter. This result, they argue, may be mainly due to the dominance of basic industries in Austria. If these two findings could withstand the process of critical scrutiny they really deserved, from the viewpoint of Austria, to be called outstanding, because both run counter to mainstream views held in this country. Co-moving private consumption has been considered, by many economists in Austria, to be the chief cause for the low fluctuation of Austria's GDP since the late 1960s, and Austria has, at least in business cycle matters, always been considered to be a laggard rather than a forerunner. The latter was supposed to hold particularly with respect to Germany.