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Accounting for Business Cycles

Brinca, P; Chari, VV; Kehoe, PJ; McGrattan, E; (2016) Accounting for Business Cycles. In: Handbook of Macroeconomics. (pp. 1013-1063). Elsevier

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We elaborate on the business cycle accounting method proposed by Chari et al. (2006), 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, and Belgium. 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.

Type: Book chapter
Title: Accounting for Business Cycles
ISBN-13: 9780444594877
DOI: 10.1016/bs.hesmac.2016.05.002
Publisher version: https://doi.org/10.1016/bs.hesmac.2016.05.002
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher's terms and conditions.
Keywords: Great Recession; Labor wedge; Efficiency wedge; Investment wedge; Decomposition of variance
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
URI: https://discovery.ucl.ac.uk/id/eprint/10054394
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