Business cycle uncertainty and economic welfare

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"We study the welfare implications of uncertainty in business cycle models. In the modern business cycle literature, multiplicative real shocks to production and/or preferences play an important role as the impulses that produce aggregate fluctuations. Introducing shocks in this way has the implication that fluctuating economies may enjoy higher welfare than their steady state counterparts. This occurs because purposeful agents make use of uncertainty in their favor. The result holds for a range of reasonable parameter values and in various models considered in the business cycle literature. One notable implication is that the welfare cost estimates which have been obtained in the literature using only consumption series may be biased and possibly seriously. (C) 2014 Elsevier Inc. All rights reserved."
Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
Issue Date
2015-04
Language
English
Article Type
Article
Citation

REVIEW OF ECONOMIC DYNAMICS, v.18, pp.185 - 200

ISSN
1094-2025
DOI
10.1016/j.red.2014.05.002
URI
http://hdl.handle.net/10203/222915
Appears in Collection
STP-Journal Papers(저널논문)
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