Comparing alternative representations and alternative methodologies in business cycle accounting

Varadarajan Chari, Patrick Kehoe and Ellen McGrattan

No 384, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: We make three comparisons relevant for the business cycle accounting approach. We show that in theory, representing the investment wedge as a tax on investment is equivalent to representing this wedge as a tax on capital income as long as the probability distributions over this wedge in the two representations are the same. In practice, convenience dictates that the underlying probability distributions over the investment wedge are different in the two representations. Even so, the quantitative results under the two representations are essentially identical. We also compare our methodology, the CKM methodology, to an alternative one used in Christiano and Davis (2006) and by us in early incarnations of the business cycle accounting approach. We argue that the CKM methodology rests on more secure theoretical foundations. Finally, we show that the results from the VAR-style decomposition of Christiano and Davis reinforce the results of the business cycle decomposition of CKM.

Keywords: Business; cycles; -; Econometric; models (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://www.minneapolisfed.org/research/SR/SR384.pdf
http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=1080 (application/pdf)

Related works:
Working Paper: Comparing alternative representations and alternative methodologies in business cycle accounting (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:384

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel ().