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Comparing alternative representations and alternative methodologies in business cycle accounting

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  • V. V. Chari
  • Patrick J. Kehoe
  • Ellen R. McGrattan

Abstract

We make two comparisons relevant for the business cycle accounting approach. We show that in theory representing the investment wedge as a tax on investment is equivalent to representing this wedge as a tax on capital income as long as the probability distributions over this wedge in the two representations are the same. In practice, convenience dictates differing probability distributions over this wedge in the two representations. Even so, the quantitative results under the two representations are essentially identical. We also compare our methodology, the CKM methodology, to an alternative one used in Christiano and Davis (2006) as well as by us in early incarnations of the business cycle accounting approach. We argue that the CKM methodology rests on more secure theoretical foundations.> > Replaced by Staff Report No. 384

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 647.

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Date of creation: 2006
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Handle: RePEc:fip:fedmwp:647

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Keywords: Business cycles - Econometric models;

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  1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers 625, Federal Reserve Bank of Minneapolis.
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