ACCOUNTING FOR SPANISH BUSINESS CYCLES

Jesús Rodríguez López and Mario Solis-Garcia

Macroeconomic Dynamics, 2016, vol. 20, issue 3, 685-714

Abstract: We apply the business cycle accounting methodology proposed by Chari, Kehoe, and McGrattan to identify the sources of Spanish business fluctuations during two outstanding cyclical episodes: the recession alongside the transition to democracy in 1977 and the great recession of 2008. We find that the labor wedge played a key role during both recessions and that taxes and labor market institutions are likely behind the wedge movements. We conclude that any model that tries to understand the causes of recessions that occurred in the last three decades should focus on the labor wedge.

Date: 2016
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Working Paper: Accounting for Spanish business cycles (2014)
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