The States vs. the states: On the Welfare Cost of Business Cycles in the U.S

Stephane Pallage and Michel Robe

No 20-17, Cahiers de recherche du Département des sciences économiques, UQAM from Université du Québec à Montréal, Département des sciences économiques

Abstract: Economic fluctuations are much stronger when measured at the state level than they are for the United States as a whole. This observation raises the question of how costly business cycles really are in the United States. Using state-level consumption data, we show that the welfare cost of consumption volatility is in fact very substantial. Indeed, in many U.S. states, the welfare gain from eliminating business cycles can exceed the gain from increasing the long-term growth rate by 1\% forever. Our findings have important implications for some key puzzles in economics and finance.

Keywords: Business Cycles; Regional Volatility; Growth; Welfare (search for similar items in EconPapers)
JEL-codes: E32 E60 (search for similar items in EconPapers)
Pages: 23
Date: 2002-08, Revised 2002-10
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The States vs. the states: On the Welfare Cost of Business Cycles in the U.S (2004)
Working Paper: The States vs. the states: On the Welfare Cost of Business Cycles in the U.S (2003)
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