Sentences about macroeconomics

From Brinca, Chari, Kehoe, and McGrattan, there is a new NBER paper “Accounting for Business Cycles“:

First with the notable exception of the United States, Spain, Ireland, and Iceland, the Great Recession was driven primarily by the efficiency wedge.  Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in Spain, Ireland, and Iceland.  Third, in the recessions of the 1980s, the labor wedge played a dominant role only in France, the United Kingdom, Belgium, and New Zealand.  Finally, in the Great Recession the efficiency wedge played a much more important role and the investment wedge played a less important role than they did in the recessions of the 1980s.

You don’t have to agree with each and every claim there to see that a simple AS-AD model won’t give you enough structure to seriously address such questions.  And:

The first misconception is that efficiency wedges in a prototype model can only come from technology shocks…In our judgment, by far the least interesting interpretation of efficiency wedges is as narrowly interpreted shocks to the blueprints governing individual firm production functions.

As a good first-order approximation, everything you read about “real business cycle theory” from its non-practitioners in the popular realm is wrong.  Except the very phrase “real business cycle theory” isn’t even the correct term here.  Better would be “contemporary macroeconomics,” although then the sense-reference distinction is going to play havoc with the first sentence of this paragraph.


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