On the welfare gains of reducing the likelihood of economic crises
Satyajit Chatterjee () and
P. Dean Corbae ()
No 15, Working Papers (Old Series) from Federal Reserve Bank of Cleveland
The authors seek to measure the potential benefit of reducing the likelihood of economic crises (defined as Depression-style collapses of economic activity). Based on the observed frequency of Depression-like events, they estimate this likelihood to be approximately one in every 83 years for the U.S. The welfare gain of reducing even this small probability of crisis to zero can range between 1.05 percent and 6.59 percent of annual consumption in perpetuity. These large gains occur because although the probability of entering a Depression-like state is small, once the state is entered it is highly persistent. The authors also find that for some calibrations of the model, uninsured unemployment risk contributes significantly to the size of the gains.
Keywords: Depressions; Financial crises; Business cycles (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
https://www.clevelandfed.org/~/media/content/newsr ... ises%20pdf.pdf?la=en Full text (application/pdf)
Working Paper: On the welfare gains of reducing the likelihood of economic crises (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:0015
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers (Old Series) from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by ().