Accounting for Business Cycles

RePEc Short ID: pke4
ORCID iD: 0000-0001-5738-1236

Brinca, Pedro; Chari, V. V.; Kehoe, Patrick J.; McGrattan, Ellen R.

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Accounting for Business Cycles

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, and Ireland, 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 Ireland and Spain. Third, in the recessions of the 1980s the labor wedge played a dominant role only in Denmark and the United Kingdom. Finally, overall in the Great Recession the efficiency wedge played a much more important role and the investment wedge played a much less important role than they did in the recessions of the 1980s.

Keywords: Great Recession; 1982 recession; Business cycle accounting;

JEL Classification: G28; E60; E61; G33;