Business cycle accounting is an accounting procedure used in
macroeconomics to decompose business cycle fluctuations into contributing factors. The procedure was introduced by
V. V. Chari,
Patrick Kehoe
Patrick Kehoe was an Irish Fianna Fáil politician. A farmer, he was elected to Dáil Éireann as a Fianna Fáil Teachta Dála (TD) for the Wexford constituency at the 1933 general election. He did not contest the 1937 general election. At th ...
, and
Ellen McGrattan
Ellen McGrattan is an American macroeconomist who is Professor of Economics at the University of Minnesota and past director of the Heller-Hurwicz Economics Institute, and consults for the Federal Reserve Bank of Minneapolis.
McGrattan's profess ...
but is similar to techniques introduced earlier. The underlying premise of the procedure is that the economy has a long run trajectory which is perturbed by various frictions. These are called wedges and the earliest version of the procedure includes a productivity wedge, a labor wedge, an investment wedge and a government consumption wedge. Business cycle accounting decomposes fluctuations in macroeconomic variables, such as GDP or employment, into fluctuations of each of these wedges (and their combinations).
Business cycle accounting has been done for various countries and various periods of time. The procedure suggests for the United States after
World War II
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...
most fluctuation in GDP is due to fluctuations in the productivity and labor wedges.
See also
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Growth accounting Growth accounting is a procedure used in economics to measure the contribution of different factors to economic growth and to indirectly compute the rate of technological progress, measured as a residual, in an economy. Growth accounting decomposes ...
References
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Business cycle
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