Comparing alternative representations and alternative methodologies in business cycle accounting

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Comparing alternative representations and alternative methodologies in business cycle accounting

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V. V. Chari
Patrick J. Kehoe
Ellen R. McGrattan

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Abstract

We make two comparisons relevant for the business cycle accounting approach. We show that in theory representing the investment wedge as a tax on investment is equivalent to representing this wedge as a tax on capital income as long as the probability distributions over this wedge in the two representations are the same. In practice, convenience dictates differing probability distributions over this wedge in the two representations. Even so, the quantitative results under the two representations are essentially identical. We also compare our methodology, the CKM methodology, to an alternative one used in Christiano and Davis (2006) as well as by us in early incarnations of the business cycle accounting approach. We argue that the CKM methodology rests on more secure theoretical foundations.> > Replaced by Staff Report No. 384

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 647.

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Date of creation: 2006
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Handle: RePEc:fip:fedmwp:647

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Paper
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Comparing alternative representations and alternative methodologies in business cycle accounting," Staff Report 384, Federal Reserve Bank of Minneapolis. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ACC-2007-01-02 (Accounting & Auditing)
NEP-ALL-2007-01-02 (All new papers)
NEP-DGE-2007-01-02 (Dynamic General Equilibrium)
NEP-MAC-2007-01-02 (Macroeconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers 625, Federal Reserve Bank of Minneapolis.
Other versions:
- V. V. Chari & Patrick Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," Levine's Bibliography 122247000000000560, UCLA Department of Economics. [Downloadable!]
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2006. "Business cycle accounting," Staff Report 328, Federal Reserve Bank of Minneapolis. [Downloadable!]
- V V Chari & Patrick J Kehoe & Ellen R. McGrattan, 2003. "Business Cycle Accounting," Levine's Bibliography 506439000000000421, UCLA Department of Economics. [Downloadable!]
- V.V. Chari & Patrick J. Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," NBER Working Papers 10351, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05. [Downloadable!] (restricted)

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