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Accounting Spanish business cycles: What can be learned from past recessions?

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  • Jesús Rodríguez López

    ()
    (Department of Economics, Universidad Pablo de Olavide)

  • Mario Solís-García

    ()
    (Macalester College, St. Paul, USA)

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    Abstract

    We apply the business cycle methodology proposed by Chari, Kehoe, and McGrattan (2007) to identify the sources of Spanish business fluctuations during two outstanding cyclical episodes: the recession alongside the inception of democracy on 1977, and the recession of 2008. We find that the labor wedge is the key element behind these fluctuations, and that both taxes and labor market institutions are likely behind the wedge movements. Our conclusion suggests that any model that tries to understand the causes of the recessions occurred in the last three decades should focus on the labor wedge. This conclusion holds regardless the framework assumes a closed economy or an open economy.

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    File URL: http://www.upo.es/serv/bib/wps/econ1205.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 12.05.

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    Length: 23 pages
    Date of creation: Sep 2012
    Date of revision:
    Handle: RePEc:pab:wpaper:12.05

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    Keywords: Business cycle accounting; efficiency wedge; labor wedge; investment wedge;

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    1. Ruy Lama, 2011. "Accounting for Output Drops in Latin America," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 295-316, April.
    2. Timothy J. Kehoe & Edward C. Prescott, 2002. "Great Depressions of the Twentieth Century," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 1-18, January.
    3. Keiichiro Kobayashi & Masaru Inaba, 2005. "Business Cycle Accounting for the Japanese Economy," Discussion papers 05023, Research Institute of Economy, Trade and Industry (RIETI).
    4. Labhard, Vincent & Wyplosz, Charles, 1996. "The New EMS: Narrow Bands inside Deep Bands," American Economic Review, American Economic Association, vol. 86(2), pages 143-46, May.
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