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An Application of Business Cycle Accounting with Misspecified Wedges

Author

Listed:
  • Kengo NUTAHARA
  • Masaru INABA

Abstract

It is often assumed that wedges evolve according to the 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.

Suggested Citation

  • Kengo NUTAHARA & Masaru INABA, 2011. "An Application of Business Cycle Accounting with Misspecified Wedges," Discussion papers 11005, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:11005
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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. Daniel Fehrle & Johannes Huber, 2020. "Business cycle accounting for the German fiscal stimulus program during the Great Recession," Working Papers 197, Bavarian Graduate Program in Economics (BGPE).
    3. Jacek Rothert & Mohammad Rahmati, 2014. "Business Cycle Accounting in a Small Open Economy," Departmental Working Papers 46, United States Naval Academy Department of Economics.
    4. Keisuke Otsu, 2012. "How well can business cycle accounting account for business cycles?," Economics Bulletin, AccessEcon, vol. 32(2), pages 1774-1784.

    More about this item

    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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