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The Role of Investment Wedges in the Carlstrom-Fuerst Economy and Business Cycle Accounting

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  • INABA Masaru
  • NUTAHARA Kengo

Abstract

Many researches that apply business cycle accounting (hereafter, BCA) to actual data conclude that models with investment frictions or investment wedges are not promising for modeling business cycle dynamics. In this paper, we apply BCA to artificial data generated by a variant model of Carlstrom and Fuerst (1997, American Economic Review), which is one of the representative models with investment frictions. Based on our findings, BCA leads us to conclude that models with investment wedges are not promising according to the criteria of BCA, even though the true model contains investment frictions.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09030.

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Length: 12 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:eti:dpaper:09030

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