Accounting for the Great Recession in the UK: Real Business Cycles and Financial Frictions
Abstract
Using the business cycle accounting (BCA) framework pioneered by Chari, Kehoe and McGratten (2006) we examine the 2008-09 recession in the UK. There has been much commentary on the financial causes of this recession, which we might have expected to shock the equation governing the intertemporal rate of substitution in consumption. However, the recession appears to have been mostly driven by shocks to the efficiency wedge in total production, rather than the intertemporal consumption, labour or spending wedge. From an expenditure perspective this result is consistent with the observed large falls in both consumption and investment during the recession. To assess this result we also simulate artificial data from a DSGE model in which asset price shocks dominate and find no strong role for the intertemporal consumption wedge using the BCA method. This result does not imply that financial frictions did not matter for the recent recession but that such frictions do not necessarily impact only on the intertemporal rate of substitution in consumption.Download Info
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Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 1207.Length:
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:ukc:ukcedp:1207
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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
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Related research
Keywords: Business Cycle Accounting; Major Recessions; TFP; Financial Frictions;Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-23 (All new papers)
- NEP-DGE-2012-04-23 (Dynamic General Equilibrium)
- NEP-MAC-2012-04-23 (Macroeconomics)
References
References listed on IDEASPlease report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Keiichiro Kobayashi & Masaru Inaba, 2005.
"Business Cycle Accounting for the Japanese Economy,"
Discussion papers
05023, Research Institute of Economy, Trade and Industry (RIETI).
- Kobayashi, Keiichiro & Inaba, Masaru, 2006. "Business cycle accounting for the Japanese economy," Japan and the World Economy, Elsevier, vol. 18(4), pages 418-440, December.
- Keiichiro Kobayashi & Masaru Inaba, 2006. "Business cycle accounting for the Japanese economy," 2006 Meeting Papers 313, Society for Economic Dynamics.
- 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.
- Roman Sustek, 2010. "Code and data files for "Monetary Business Cycle Accounting"," Computer Codes 09-177, Review of Economic Dynamics.
- Sustek, Roman, 2009. "Monetary Business Cycle Accounting," MPRA Paper 17518, University Library of Munich, Germany.
- Keisuke Otsu, 2009.
"International Business Cycle Accounting,"
IMES Discussion Paper Series
09-E-29, Institute for Monetary and Economic Studies, Bank of Japan.
- Keisuke Otsu, 2010. "International Business Cycle Accounting," Studies in Economics 1010, Department of Economics, University of Kent.
- Suparna Chakraborty, 2004. "Accounting for the 'Lost Decade' in Japan," Macroeconomics 0408009, EconWPA.
Citations
Blog mentions
As found by EconAcademics.org, the blog aggregator for Economics research:- Accounting for the Great Recession in the UK: Real Business Cycles and Financial Frictions
by Christian Zimmermann in NEP-DGE blog on 2012-04-25 12:15:12 - Some doubts about NGDP targets
by chris dillow in Stumbling and Mumbling on 2012-04-27 11:21:33 - Some doubts about NGDP targets
by chris dillow in Stumbling and Mumbling on 2012-04-27 11:21:33 - Accounting for the Great Recession in the UK: Real Business Cycles and Financial Frictions
by Christian Zimmermann in NEP-DGE blog on 2012-04-25 12:15:12
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