BCA all the way
2009-02-19 · Original WordPress address
The more I think about it, the more I think business cycle accounting should be the back-bone of the macro curriculum. Teach the growth models and then use BCA to show how the economy strays from that ideal. Wedges are so much more intuitive than fundamental shocks.
You still have to learn real business cycle models, adding money, the mechanics of sticky prices, credit channel stuff and all that, but I think BCA is a nice way to frame the problem of business cycles.
Couldn't this even be taught to undergrads? Instead of the theoretical suspect (and outdated) Keynesian model, BCA would introduce business cycles as an empirical problem. Something we have a great deal of data on but not a great deal of understanding. Also, because the BCA stuff points to labor frictions as a major contributor to business cycles ((Certainly not a robust finding because this literature is young.)), they can be a nice segue to unemployment.
Teaching business cycles this way to undergrads --- without introducing a causal model --- would make business cycle policy discussions hard. Maybe this is ok. Teach policy in the Public class. After all, they don't teach medicine in physiology class.