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The Role of Investment Wedges in the Carlstrom-Fuerst Economy and Business Cycle Accounting

  • Inaba, Masaru
  • Nutahara, Kengo

Many researches that apply business cycle accounting (hereafter, BCA) to actual data conclude that models with investment frictions or investment wedges are not promising for modeling business cycle dynamics. In this paper, we apply BCA to artificial data generated by a variant model of Carlstrom and Fuerst (1997, American Economic Review), which is one of representative models with investment frictions. We find that BCA leads us to conclude that models of investment wedges are not promising according to the criteria of BCA, although the true model contains investment frictions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8337.

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Date of creation: 19 Apr 2008
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Handle: RePEc:pra:mprapa:8337
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