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Business Cycle Accounting East and West: Asian Finance and the Investment Wedge

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  • Dooyeon Cho

    (Korea Institute for International Economic Policy)

  • Antonio Doblas-Madrid

    (Michigan State University)

Abstract

While a large literature studies the causes of financial crises, little is known about the mechanisms by which crises lead to output drops. We perform an exploratory analysis of output drops by applying the Business Cycle Accounting (BCA) methodology developed by Chari et al. (2007) to a sample of 23 crises. The BCA procedure estimates the wedges, and thus the kinds of distortions, that are most relevant in explaining output movements in each episode. Our results make a case for separating East Asian crises, which are mostly driven by the efficiency and investment wedges, from crises elsewhere, which are mostly driven by the efficiency and labor wedges. These findings are consistent and complementary with studies of Asian financial systems, which highlight the influence of Japanese institutions and practices, including relationship-based as opposed to market-based lending, and reluctance to impose bankruptcy. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2012.10.003
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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): 16 (2013)
Issue (Month): 4 (October)
Pages: 724-744

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Handle: RePEc:red:issued:10-51

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Keywords: Business cycle accounting; Financial crises; Output drops; Recoveries;

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References

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Cited by:
  1. Roman Sustek, 2011. "Monetary Business Cycle Accounting," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 592-612, October.
  2. Pedro Brinca, 2013. "Distortions in the Neoclassical Growth Model: A Cross-Country Analysis," GEMF Working Papers 2013-24, GEMF - Faculdade de Economia, Universidade de Coimbra.

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