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An application of business cycle accounting with misspecified wedges

Author

Listed:
  • Masaru Inaba

    (Kansai University)

  • Kengo Nutahara

    (Senshu University)

Abstract

It is often assumed that wedges evolve according to VAR(1) in the applications of business cycle accounting (BCA). However, recent research finds that the wedges have no VAR(1) representation in many dynamic stochastic general equilibrium (DSGE) economies, and that there might be a misspecification of the stochastic process of wedges. In order to assess the empirical usefulness of BCA, we apply BCA to a widely used medium-scale DSGE economy. Based on our experiments, we find that the accuracy of the measurement of wedges is high enough to capture the business cycle implications of wedges. (Copyright: Elsevier)

Suggested Citation

  • Masaru Inaba & Kengo Nutahara, 2012. "An application of business cycle accounting with misspecified wedges," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 265-269, April.
    • Handle: RePEc:red:issued:08-173
    DOI: 10.1016/j.red.2012.01.004
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    References listed on IDEAS

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    8. Otsu Keisuke, 2010. "A Neoclassical Analysis of the Asian Crisis: Business Cycle Accounting for a Small Open Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-39, July.
    9. NUTAHARA Kengo & INABA Masaru, 2008. "On Equivalence Results in Business Cycle Accounting," Discussion papers 08015, Research Institute of Economy, Trade and Industry (RIETI).
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    Cited by:

    1. Madanizadeh, Seyed Ali & Karimirad, Ali & Rahmati, Mohammad H., 2019. "Business cycle accounting of trade barriers in a small open economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 67-78.
    2. Jacek Rothert & Mohammad Rahmati, 2014. "Business Cycle Accounting in a Small Open Economy," Departmental Working Papers 46, United States Naval Academy Department of Economics.
    3. Daniel Fehrle & Johannes Huber, 2020. "Business cycle accounting for the German fiscal stimulus program during the Great Recession," Discussion Paper Series 339, Universitaet Augsburg, Institute for Economics.
    4. Keisuke Otsu, 2012. "How well can business cycle accounting account for business cycles?," Economics Bulletin, AccessEcon, vol. 32(2), pages 1774-1784.

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    More about this item

    Keywords

    Business cycle accounting; Misspecification;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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