The post-crisis slump in Europe: a business cycle accounting analysis

Florian Gerth 1  and Keisuke Otsu 2 , 3
  • 1 School of Economics, University of Kent, Canterbury, UK
  • 2 Keio University Faculty of Business and Commerce, 2-15-45 Mita, Minato-Ku, Tokyo, Japan
  • 3 School of Economics and MaGHiC, University of Kent, Canterbury, UK
Florian Gerth and Keisuke Otsu
  • Corresponding author
  • Keio University Faculty of Business and Commerce, 2-15-45 Mita, Minato-Ku, Tokyo, Japan
  • School of Economics and MaGHiC, University of Kent, Canterbury, UK
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This paper analyzes the post-crisis slump in 30 European economies during the 2008Q1–2014Q4 period using the business cycle accounting (BCA) method à la [Chari, V. V., P. Kehoe, and E. McGrattan. 2007. “Business Cycle Accounting.” Econometrica 75 (3): 781–836]. We find that the deterioration in the efficiency wedge is the most important driver of the European Great Recession and that this adverse shock persists throughout our sample. Moreover, we find that countries with higher growth in nonperforming loans feature a smaller decline in efficiency wedges. These findings support the emerging literature on resource misallocation triggered by financial crises.

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The B.E. Journal of Macroeconomics publishes significant research and scholarship in theoretical and applied macroeconomics. The range of topics includes business cycle research, economic growth, and monetary economics, as well as topics drawn from the substantial areas of overlap between macroeconomics and international economics, labor economics, finance, development economics, political economy, public economics, econometric theory.