Business cycle accounting is an accounting procedure used in macroeconomics to decompose business cycle fluctuations into contributing factors. The procedure was introduced by V. V. Chari, Patrick Kehoe and Ellen McGrattan but is similar to techniques introduced earlier. The underlying premise of the procedure is that the economy has a long run trajectory which is perturbed by various frictions. These are called wedges and the earliest version of the procedure includes a productivity wedge, a labor wedge, an investment wedge and a government consumption wedge. Business cycle accounting decomposes fluctuations in macroeconomic variables, such as GDP or employment, into fluctuations of each of these wedges (and their combinations).
Business cycle accounting has been done for various countries and various periods of time. The procedure suggests for the U.S. after World War II most fluctuation in GDP is due to fluctuations in the productivity and labor wedges.
Famous quotes containing the words business, cycle and/or accounting:
“No wonder poets sometimes have to seem
So much more business-like than business men.
Their wares are so much harder to get rid of.”
—Robert Frost (1874–1963)
“The cycle of the machine is now coming to an end. Man has learned much in the hard discipline and the shrewd, unflinching grasp of practical possibilities that the machine has provided in the last three centuries: but we can no more continue to live in the world of the machine than we could live successfully on the barren surface of the moon.”
—Lewis Mumford (1895–1990)
“At the crash of economic collapse of which the rumblings can already be heard, the sleeping soldiers of the proletariat will awake as at the fanfare of the Last Judgment and the corpses of the victims of the struggle will arise and demand an accounting from those who are loaded down with curses.”
—Karl Liebknecht (1871–1919)