Accounting for Business Cycles

Pedro Brinca, Varadarajan Chari, Patrick Kehoe and Ellen McGrattan

Chapter Chapter 13 in Handbook of Macroeconomics, 2016, vol. 2, pp 1013-1063 from Elsevier

Abstract: We elaborate on the business cycle accounting method proposed by Chari et al. (2006), clear up some misconceptions about the method, and then apply it to compare the Great Recession across OECD countries as well as to the recessions of the 1980s in these countries. We have four main findings. First, with the notable exception of the United States, Spain, Ireland, and Iceland, the Great Recession was driven primarily by the efficiency wedge. Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in Spain, Ireland, and Iceland. Third, in the recessions of the 1980s, the labor wedge played a dominant role only in France, the United Kingdom, and Belgium. Finally, overall in the Great Recession, the efficiency wedge played a more important role and the investment wedge played a less important role than they did in the recessions of the 1980s.

Keywords: Great Recession; Labor wedge; Efficiency wedge; Investment wedge; Decomposition of variance; E3; E32; F44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (67)

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Working Paper: Accounting for Business Cycles (2016)
Working Paper: Accounting for Business Cycles (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:macchp:v2-1013

DOI: 10.1016/bs.hesmac.2016.05.002

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