Comparing alternative representations and alternative methodologies in business cycle accounting
By: V.V. Chari, Ellen R. McGrattan, and Patrick J. Kehoe
Contributors: McGrattan, Ellen R.; Kehoe, Patrick J.; Federal Reserve Bank of Minneapolis. Research Department
Series: Working paper / Federal Reserve Bank of Minneapolis, Research Dept -- 647
Publisher: Federal Reserve Bank of Minneapolis, Research Dept.
Published: 2006
Place of publication: Minneapolis, MN]
Language: eng
Format: [electronic resource] /
Description: 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.
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"December 2006."

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