On the Welfare Effects of Eliminating Business Cycles

Per Krusell and Anthony Smith

Review of Economic Dynamics, 1999, vol. 2, issue 1, 245-272

Abstract: We investigate the welfare effects of eliminating business cycles in a model with substantial consumer heterogeneity. The heterogeneity arises from uninsurable and idiosyncratic uncertainty in preferences and employment, where regarding employment, we distinguish among employment and short- and long-term unemployment. We calibrate the model to match the distribution of wealth in U.S. data and features of transitions between employment and unemployment. Unlike previous studies, we study how business cycles affect different groups of consumers. We conclude that the cost of cycles is small for almost all groups and, indeed, is negative for some. (Copyright: Elsevier)

JEL-codes: C68 D31 D61 E32 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (150)

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DOI: 10.1006/redy.1998.0043

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