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

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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

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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 representative models with investment frictions. We find that BCA leads us to conclude that models of investment wedges are not promising according to the criteria of BCA, although the true model contains investment frictions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8337.

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Date of creation: 19 Apr 2008
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Handle: RePEc:pra:mprapa:8337

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Paper
- INABA Masaru & NUTAHARA Kengo, 2009. "The Role of Investment Wedges in the Carlstrom-Fuerst Economy and Business Cycle Accounting," Discussion papers 09030, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]

Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

This paper has been announced in the following NEP Reports:

NEP-ACC-2008-04-29 (Accounting & Auditing)
NEP-ALL-2008-04-29 (All new papers)
NEP-DGE-2008-04-29 (Dynamic General Equilibrium)
NEP-MAC-2008-04-29 (Macroeconomics)

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