Accounting for Business Cycles

89 Pages Posted: 26 Sep 2016

See all articles by Pedro Brinca

Pedro Brinca

Nova School of Business and Economics; CEF.UP

Varadarajan V. Chari

University of Minnesota - Twin Cities - Department of Economics; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Patrick Kehoe

Stanford University

Ellen R. McGrattan

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities; National Bureau of Economic Research (NBER)

Date Written: September 2016

Abstract

We elaborate on the business cycle accounting method proposed by Chari, Kehoe, and McGrattan (2007), 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, Belgium, and New Zealand. 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.

Suggested Citation

Brinca, Pedro and Chari, Varadarajan V. and Kehoe, Patrick and McGrattan, Ellen R., Accounting for Business Cycles (September 2016). NBER Working Paper No. w22663, Available at SSRN: https://ssrn.com/abstract=2843376

Pedro Brinca (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

HOME PAGE: http://htttp://www.pedrobrinca.pt

CEF.UP ( email )

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Varadarajan V. Chari

University of Minnesota - Twin Cities - Department of Economics ( email )

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1108 Management & Economics
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United States
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Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Patrick Kehoe

Stanford University ( email )

Ellen R. McGrattan

Federal Reserve Bank of Minneapolis - Research Department ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-340-2587 (Phone)
612-340-2356 (Fax)

University of Minnesota - Twin Cities

420 Delaware St. SE
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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