Business Cycle Accounting / V.V. Chari, Patrick J. Kehoe, Ellen McGrattan.

Format:

Book

Author/Creator:

Chari, V.V.

Contributor:

National Bureau of Economic Research.

Kehoe, Patrick J.

McGrattan, Ellen.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10351.

NBER working paper series no. w10351

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

We propose a simple method to help researchers develop quantitative models of economic fluctuations. The method rests on the insight that many models are equivalent to a prototype growth model with time-varying wedges which resemble productivity, labor and investment taxes, and government consumption. Wedges corresponding to these variables -- effciency, labor, investment, and government consumption wedges -- are measured and then fed back into the model in order to assess the fraction of various fluctuations they account for. Applying this method to U.S. data for the Great Depression and the 1982 recession reveals that the effciency and labor wedges together account for essentially all of the fluctuations; the investment wedge plays a decidedly tertiary role, and the government consumption wedge, none. Analyses of the entire postwar period and alternative model specifications support these results. Models with frictions manifested primarily as investment wedges are thus not promising for the study of business cycles.

Notes:

Print version record

March 2004.