Two Flaws In Business Cycle Accounting

Lawrence Christiano and Joshua M. Davis

No 12647, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using 'business cycle accounting' (BCA), Chari, Kehoe and McGrattan (2006) (CKM) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not promising avenues for modeling business cycle dynamics. There are two reasons that this conclusion is not warranted. First, small changes in the implementation of BCA overturn CKM's conclusions. Second, one way that shocks to the intertemporal wedge impact on the economy is by their spillover effects onto other wedges. This potentially important mechanism for the transmission of intertemporal wedge shocks is not identified under BCA. CKM potentially understate the importance of these shocks by adopting the extreme position that spillover effects are zero.

JEL-codes: C01 C32 C52 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (64)

Downloads: (external link)
http://www.nber.org/papers/w12647.pdf (application/pdf)

Related works:
Working Paper: Two flaws 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:nbr:nberwo:12647

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12647

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().