Accounting for the Great Recession in the UK: Real Business Cycles and Financial Frictions
Using the business cycle accounting (BCA) framework pioneered by Chari, Kehoe and McGratten (2006) we examine the 2008-09 recession in the UK. There has been much commentary on the financial causes of this recession, which we might have expected to shock the equation governing the intertemporal rate of substitution in consumption. However, the recession appears to have been mostly driven by shocks to the efficiency wedge in total production, rather than the intertemporal consumption, labour or spending wedge. From an expenditure perspective this result is consistent with the observed large falls in both consumption and investment during the recession. To assess this result we also simulate artificial data from a DSGE model in which asset price shocks dominate and find no strong role for the intertemporal consumption wedge using the BCA method. This result does not imply that financial frictions did not matter for the recent recession but that such frictions do not necessarily impact only on the intertemporal rate of substitution in consumption.
|Date of creation:||Apr 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Suparna Chakraborty, 2004. "Accounting for the 'Lost Decade' in Japan," Macroeconomics 0408009, EconWPA.
- Keisuke Otsu, 2009.
"International Business Cycle Accounting,"
IMES Discussion Paper Series
09-E-29, Institute for Monetary and Economic Studies, Bank of Japan.
- Keiichiro Kobayashi & Masaru Inaba, 2006.
"Business cycle accounting for the Japanese economy,"
2006 Meeting Papers
313, Society for Economic Dynamics.
- Kobayashi, Keiichiro & Inaba, Masaru, 2006. "Business cycle accounting for the Japanese economy," Japan and the World Economy, Elsevier, vol. 18(4), pages 418-440, December.
- Keiichiro Kobayashi & Masaru Inaba, 2005. "Business Cycle Accounting for the Japanese Economy," Discussion papers 05023, Research Institute of Economy, Trade and Industry (RIETI).
- Roman Sustek, 2011.
"Monetary Business Cycle Accounting,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 592-612, October.
- Roman Sustek, 2010. "Code and data files for "Monetary Business Cycle Accounting"," Computer Codes 09-177, Review of Economic Dynamics.
- Sustek, Roman, 2009. "Monetary Business Cycle Accounting," MPRA Paper 17518, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:ukc:ukcedp:1207. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tracey Girling)
If references are entirely missing, you can add them using this form.