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An Application of Business Cycle Accounting with Misspecified Wedges

Kengo Nutahara and Masaru Inaba

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: It is often assumed that wedges evolve according to the VAR (1) in the applications of business cycle accounting (BCA). However, recent research finds that the wedges have no VAR (1) representation in many dynamic stochastic general equilibrium(DSGE) economies, and that there might be a misspecification of the stochastic process of wedges. In order to assess the empirical usefulness of BCA, we apply BCA to a widely used medium-scale DSGE economy. Based on our experiments, we find that the accuracy of the measurement of wedges is high enough to capture the business cycle implications of wedges.

New Economics Papers: this item is included in nep-bec, nep-cis, nep-dge and nep-mac
Date: 2011-02
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Journal Article: An application of business cycle accounting with misspecified wedges (2012) Downloads
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