Working Paper: NBER ID: w22663
Authors: Pedro Brinca; V. V. Chari; Patrick J. Kehoe; Ellen McGrattan
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.
Keywords: business cycles; accounting; efficiency wedge; labor wedge; investment wedge
JEL Codes: E00; E12; E13; E22; E24; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| efficiency wedge (D61) | Great Recession (G01) |
| labor wedge (J39) | Great Recession (United States) (G01) |
| investment wedge (G31) | Great Recession (Spain, Ireland, Iceland) (F65) |
| labor wedge (J39) | Great Recession (France, UK, Belgium, New Zealand) (F65) |
| efficiency wedge (D61) | economic downturns (OECD countries) (F44) |
| efficiency wedge (D61) | investment wedge (Great Recession) (E22) |