A Reassessment of Real Business Cycle Theory
During the downturn of 2008–2009, output and hours fell significantly, but labor productivity rose. These facts have led many to conclude that there is a significant deviation between observations and current macrotheories that assume business cycles are driven, at least in part, by fluctuations in total factor productivities of firms. We show that once investment in intangible capital is included in the analysis, there is no inconsistency. Measured labor productivity rises if the fall in output is underestimated; this occurs when there are large unmeasured intangible investments. Microevidence suggests that these investments are large and cyclically important.
|Date of creation:||09 Jan 2014|
|Note:||Forthcoming in: American Economic Review Papers and Proceedings|
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- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007.
"Business Cycle Accounting,"
Econometric Society, vol. 75(3), pages 781-836, May.
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers 625, Federal Reserve Bank of Minneapolis.
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