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Accounting for Business Cycles

Author

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  • Brinca, P.
  • Chari, V.V.
  • Kehoe, P.J.
  • McGrattan, E.

Abstract

We elaborate on the business cycle accounting method proposed by Chari et al. (2006), clear up some misconceptions about the method, and then apply it to compare the Great Recession across OECD countries as well as to the recessions of the 1980s in these countries. We have four main findings. First, with the notable exception of the United States, Spain, Ireland, and Iceland, the Great Recession was driven primarily by the efficiency wedge. Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in Spain, Ireland, and Iceland. Third, in the recessions of the 1980s, the labor wedge played a dominant role only in France, the United Kingdom, and Belgium. Finally, overall in the Great Recession, the efficiency wedge played a more important role and the investment wedge played a less important role than they did in the recessions of the 1980s.

Suggested Citation

  • Brinca, P. & Chari, V.V. & Kehoe, P.J. & McGrattan, E., 2016. "Accounting for Business Cycles," Handbook of Macroeconomics, Elsevier.
  • Handle: RePEc:eee:macchp:v2-1013
    DOI: 10.1016/bs.hesmac.2016.05.002
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    Cited by:

    1. Pedro Brinca & Miguel H. Ferreira & Francesco Franco & Hans A. Holter & Laurence Malafry, 2017. "Fiscal Consolidation Programs and Income Inequality," CeBER Working Papers 2017-11, Centre for Business and Economics Research (CeBER), University of Coimbra.
    2. Keiichiro Kobayashi & Tomoyuki Nakajima, 2017. "A macroeconomic model of liquidity crises," CIGS Working Paper Series 17-010E, The Canon Institute for Global Studies.
    3. Auray Stéphane & Eyquem Aurélien, 2017. "Unemployment, Borrowing Constraints and Stabilization Policies," Working Papers 2017-63, Center for Research in Economics and Statistics.
    4. Ellen McGrattan, 2016. "Intangible Capital and Measured Productivity," 2016 Meeting Papers 62, Society for Economic Dynamics.
    5. Florian Gerth & Keisuke Otsu, 2016. "A Post-crisis Slump in Europe: A Business Cycle Accounting Analysis," Studies in Economics 1606, School of Economics, University of Kent.
    6. Clymo, AJ, 2017. "Heterogeneous Firms, Wages, and the Effects of Financial Crises," Economics Discussion Papers 20572, University of Essex, Department of Economics.
    7. Grjebine, Thomas & Szczerbowicz, Urszula & Tripier, Fabien, 2018. "Corporate debt structure and economic recoveries," European Economic Review, Elsevier, vol. 101(C), pages 77-100.
    8. Cristina Arellano & Yan Bai & Patrick J. Kehoe, 2012. "Financial frictions and fluctuations in volatility," Staff Report 466, Federal Reserve Bank of Minneapolis.
    9. Kukić, Leonard, 2017. "Socialist growth revisited: insights from Yugoslavia," Economic History Working Papers 85079, London School of Economics and Political Science, Department of Economic History.
    10. Keiichiro Kobayashi & Daichi Shirai, 2017. "Debt-Ridden Borrowers and Economic Slowdown," CIGS Working Paper Series 17-002E, The Canon Institute for Global Studies.
    11. Kehoe, Patrick J. & Midrigan, Virgiliu & Pastorino, Elena, 2018. "Evolution of Modern Business Cycle Models: Accounting for the Great Recession," Staff Report 566, Federal Reserve Bank of Minneapolis.
    12. Almosova, Anna & Voigts, Simon & Burda, Michael, 2017. "Social Security Contributions and the Business Cycle," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168134, Verein für Socialpolitik / German Economic Association.
    13. Tiago Neves Sequeira & Pedro Mazeda Gil & Óscar Afonso, 2016. "Growth without scale effects due to entropy," CEFAGE-UE Working Papers 2016_07, University of Evora, CEFAGE-UE (Portugal).
    14. Alexander Meyer-Gohde, 2017. "Social Security Contributions and the Business Cycle," SFB 649 Discussion Papers SFB649DP2017-018, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    15. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.

    More about this item

    Keywords

    Great Recession; Labor wedge; Efficiency wedge; Investment wedge; Decomposition of variance; E3; E32; F44;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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