“On Identification Issues in business cycle accounting models”

with Nikolay Iskrev and Francesca Loria.

Abstract: Since its introduction by Chari et al. (2007), Business Cycle Accounting (BCA) exercises have become widespread. Much attention has been devoted to the results of such exercises and to methodological departures from the baseline methodology. Little attention has been paid to identification issues within these classes of models. In this paper we investigate whether such issues are of concern in the original methodology and in an extension proposed by Sustek (2011) called Monetary BCA. We resort to two types of identification tests in population. One concerns strict identification as theorized by Komunjer and Ng (2011) while the other deals both with strict and weak identification as in Iskrev (2015). Most importantly, we explore the extent to which these weak identification problems affect the main economic takeaways and find that the identification deficiencies are not relevant for the standard BCA model. Finally, we compute some statistics of interest to practitioners of the BCA methodology.

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