A1975
Title: Multi-sector business cycle accounting in a data-rich environment
Authors: Scott Brave - Federal Reserve Bank of Chicago (United States)
Andrew Butters - Indiana University (United States) [presenting]
Abstract: Motivated by a multi-sector general equilibrium model with input-output linkages, we use a structural dynamic factor model to decompose U.S.\ macroeconomic fluctuations into the contributions of shocks to the four ``wedges'' commonly used in business cycle accounting: (i) an efficiency, (ii) a labor, (iii) an investment, and (iv) a government wedge. We then evaluate the extent to which shocks to these wedges account for the degree of cross-sectional co-movement in a panel of nearly 150 macroeconomic indicators at business cycle frequencies. We find evidence that the investment and labor wedges are the most likely source of this qualitative feature of business cycles for the U.S., and that the investment wedge played a dominant role in contributing to the depth of the Great Recession and the prolonged weakness of the recovery.
