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It’s a small small welfare cost of fluctuations

Portier, Franck and Puch González, Luis A. (2005) It’s a small small welfare cost of fluctuations. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 0513, 2005, ]

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Abstract

Lucas [1987] has shown that in a representative agent framework, the potential welfare gain from stabilizing consumption around its mean is small. We provide an example and some insight for why Lucas’ measure is an upper bound of the welfare cost of fluctuations in walrasian economies.


Item Type:Working Paper or Technical Report
Additional Information:

JEL code: E32, C63, C68

Uncontrolled Keywords:Cost of Business Cycles, Dynamic General Equilibrium
Subjects:Social sciences > Economics > Econometrics
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2005
Number:0513
ID Code:7908
References:

Cooley, T., and G. Hansen (1992): “Tax distortions in a Neoclassical Monetary Economy,” Journal of Economic Theory, 58, 2090–316.

Den Haan, W., and A. Marcet (1990): “Solving the Stochastic Growth Model by Parametrizing Epectations,” Journal of Business and Economic Statistics, 8, 31–34.

Krussell, P., and A. Smith (1999): “On the welfare effects of eliminating business cycles,” Review of Economic Dynamics, 2(1), 245–272.

Lucas, R. (1987): Models of Business Cycles. Basil Blackwell, Oxford.

Marcet, A., and G. Lorenzoni (1998): “Parameterized Expectations Approach: Some Practical Issues,” in Computational Methods for the Study of Dynamic Economies, ed. by R. Marimon, and A. Scott. Oxford University Press, Oxford.

McCallum, B. (1989): “Real Business Cycles Models,” in Modern Business Cycle Theories, ed. by R. Barro. Harvard University Press, Boston.

Deposited On:20 May 2008
Last Modified:06 Feb 2014 07:56

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