Business Cycle Accounting results

General DSGE Modeling
1

Hello there.

I’ve recently applied the CKM (2007) BCA approach to updated data for the U.S. and Greece in particular. My results for both countries are relatable to the literature in the sense that the US recession can be primarily explained by the labour wedge, while the Greek recession was an efficiency wedge one. I would personally expect Greece to be driven from the labour wedge also, due to the deterioration of employment during the crisis years 2010-2015, however in my results the labour wedge has, at best, a neutral effect on lost output. Is it an instance of the efficiency wedge including a large share of the labour drop? Am I missing something? Any thoughts would be appreciated.

2

I don’t find this too surprising. How do you explain the massive drop in GDP with essentially the same number of people in a short amount of time? Remember also, that in terms of national accounting public employees are accounted for at cost. If you cut public sector wages, this will show up as a decrease in “productivity”.