Accounting for Business Cycles

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

Research output: Chapter in Book/Report/Conference proceedingChapter

23 Scopus citations


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 (US)
Title of host publicationHandbook of Macroeconomics, 2016
EditorsJohn B. Taylor, Harald Uhlig
PublisherElsevier B.V.
Number of pages51
ISBN (Print)9780444594877
StatePublished - 2016

Publication series

NameHandbook of Macroeconomics
ISSN (Print)1574-0048

Bibliographical note

Publisher Copyright:
© 2016 Elsevier B.V.


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


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