Accounting for Business Cycles

Pedro Brinca, V.V. Chari, P.J. Kehoe, E. McGrattan

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

30 Citations (Scopus)


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.
Original languageEnglish
Title of host publicationHandbook of Macroeconomics
EditorsJohn B. Taylor, Harald Uhlig
ISBN (Print)978-0-444-59487-7
Publication statusPublished - 2016


  • Great Recession
  • Labor wedge
  • Efficiency wedge
  • Investment wedge
  • Decomposition of variance


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