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An application of business cycle accounting with misspecified wedges

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Author Info

  • Masaru Inaba

    (Kansai University)

  • Kengo Nutahara

    (Senshu University)

Abstract

It is often assumed that wedges evolve according to VAR(1) in the applications of business cycle accounting (BCA). However, recent research finds that the wedges have no VAR(1) representation in many dynamic stochastic general equilibrium (DSGE) economies, and that there might be a misspecification of the stochastic process of wedges. In order to assess the empirical usefulness of BCA, we apply BCA to a widely used medium-scale DSGE economy. Based on our experiments, we find that the accuracy of the measurement of wedges is high enough to capture the business cycle implications of wedges. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2012.01.004
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 15 (2012)
Issue (Month): 2 (April)
Pages: 265-269

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Handle: RePEc:red:issued:08-173

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Related research

Keywords: Business cycle accounting; Misspecification;

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References

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  1. Erasmus Kristoffer Kersting, 2008. "The 1980s Recession in the UK: A Business Cycle Accounting Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 179-191, January.
  2. Otsu Keisuke, 2010. "A Neoclassical Analysis of the Asian Crisis: Business Cycle Accounting for a Small Open Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-39, July.
  3. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
  4. Keiichiro Kobayashi & Masaru Inaba, 2005. "Business Cycle Accounting for the Japanese Economy," Discussion papers 05023, Research Institute of Economy, Trade and Industry (RIETI).
  5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers 625, Federal Reserve Bank of Minneapolis.
  6. NUTAHARA Kengo & INABA Masaru, 2008. "On Equivalence Results in Business Cycle Accounting," Discussion papers 08015, Research Institute of Economy, Trade and Industry (RIETI).
  7. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2003. "Accounting for the Great Depression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-8.
  8. Gregor Baeurle & Daniel Burren, 2007. "A Note on Business Cycle Accounting," Diskussionsschriften dp0705, Universitaet Bern, Departement Volkswirtschaft.
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Cited by:
  1. Keisuke Otsu, 2012. "How well can business cycle accounting account for business cycles?," Economics Bulletin, AccessEcon, vol. 32(2), pages 1774-1784.

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