Working Paper
Two flaws in business cycle accounting
Davis, Joshua M.; Christiano, Lawrence J. (2006)
Using ?business cycle accounting? (BCA), Chari, Kehoe and McGrattan (2006) (CKM) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not promising avenues for modeling business cycle dynamics. There are two reasons that this conclusion is not warranted. First, small changes in the implementation of BCA overturn CKM?s conclusions. Second, one way that shocks to the intertemporal wedge impact on the economy is by their spillover effects onto other wedges. This potentially important mechanism for the transmission of intertemporal wedge shocks ...
Working Paper Series , Paper WP-06-10

Working Paper
Two flaws in business cycle dating
Davis, Joshua M.; Christiano, Lawrence J. (2006)
Using ?business cycle accounting,? Chari, Kehoe, and McGrattan (2006) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not promising avenues for modeling business cycle dynamics. There are two reasons that this conclusion is not warranted. First, small changes in the implementation of business cycle accounting overturn Chari, Kehoe, and McGrattan?s conclusions. Second, one way that shocks to the intertemporal wedge affect the economy is by their spillover effects onto other wedges. This potentially important mechanism for the ...
Working Papers (Old Series) , Paper 0612