Markups, Gaps, and the Welfare Costs of Business Fluctuations
Jordi Gali (),
Mark Gertler () and
David Lopez-Salido ()
No 8850, NBER Working Papers from National Bureau of Economic Research, Inc
In this paper we present a simple, theory-based measure of the variations in aggregate economic efficiency associated with business fluctuations. We decompose this indicator, which we refer to as 'the gap', into two constituent parts: a price markup and a wage markup, and show that the latter accounts for the bulk of the fluctuations in our gap measure. Finally, we derive a measure of the welfare costs of business cycles that is directly related to our gap variable, and which takes into account explicitly the existence of a varying aggregate inefficiency. When applied to postwar U.S. data, for plausible parametrizations, our measure suggests welfare losses of fluctuations that are of a higher order of magnitude than those derived by Lucas (1987). It also suggests that the major postwar recessions involved substantial efficiency costs.
JEL-codes: E3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (90) Track citations by RSS feed
Published as Jordi Galí & Mark Gertler & J. David López-Salido, 2007. "Markups, Gaps, and the Welfare Costs of Business Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 44-59, November.
Downloads: (external link)
Journal Article: Markups, Gaps, and the Welfare Costs of Business Fluctuations (2007)
Working Paper: Markups, gaps and the welfare costs of business fluctuations (2005)
Working Paper: Markups, Gaps, and the Welfare Costs of Business Fluctuations (2003)
Working Paper: Mark-ups, Gaps and the Welfare Costs of Business Fluctuations (2003)
Working Paper: Markups, gaps, and the welfare costs of business fluctuations (2002)
Working Paper: Markups, Gaps and the Welfare Costs of Business Fluctuations (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:8850
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().