On the welfare costs of business cycles in the 20th century

João Issler and Osmani Guillén
Authors registered in the RePEc Author Service: Afonso Arinos Mello Franco Neto

No 481, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: Lucas (1987) has shown a surprising result in business-cycle research, that the welfare cost of business cycles are relatively small. Using standard assumptions on preferences and a reasonable reduced form for consumption, we computed these welfare costs for the pre- and post-WWII era, using three alternative trend-cycle decomposition methods. The post-WWII period is very era this basic result is dramatically altered. For the Beveridge and Nelson decomposition, and reasonable preference parameter and discount values, we get a compensation of about 5% of consumption, which is by all means a sizable welfare cost (about US$ 1,000.00 a year).

Date: 2003-02
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (3)

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