Are all economic fluctuations bad for consumers?

Jongsoo Kim, Kwang Hwan Kim and Myungkyu Shim

Journal of Economic Dynamics and Control, 2023, vol. 156, issue C

Abstract: Are business cycles always costly? This paper sheds new light on this question in the context of a two-sector neoclassical business cycle model by focusing on the roles of the origin of shocks and the degree of real frictions that restrict factor reallocation both inter-temporally (investment adjustment cost) and intra-temporally (inter-sectoral factor immobilities). We find that under the benchmark parameterization, investment-specific technology shocks are welfare-improving while consumption-specific technology shocks are welfare-detrimental, regardless of the degree of real frictions. While aggregate TFP shocks can be both depending on the degree of real frictions, welfare-improving business cycles are not supported by empirical evidence.

Keywords: Welfare cost of business cycles; Two-sector neoclassical model; Nature of shocks; Factor mobility; Investment adjustment cost (search for similar items in EconPapers)
JEL-codes: E32 E39 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:156:y:2023:i:c:s0165188923001562

DOI: 10.1016/j.jedc.2023.104750

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