A1452
Title: Multi-sector business cycle accounting in a data-rich environment
Authors: Andrew Butters - Indiana University (United States) [presenting]
Scott Brave - Federal Reserve Bank of Chicago (United States)
Abstract: Motivated by a multi-sector general equilibrium model with input-output linkages, a structural dynamic factor model is used 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. 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 is then evaluated. Evidence is found that the investment and labor wedges are the most likely source of this qualitative feature of business cycles for the U.S., but that specific features of the volatility in the latest business cycle (i.e., pandemic recession) need to be accounted for for these wedges to play an important role recently.
