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

• Autor(a) principal: Issler, João Victor
• Data de Publicação: 2003
• Outros Autores: Guillen, Osmani Teixeira Carvalho
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Institucional do FGV (FGV Repositório Digital)
• Texto Completo: http://hdl.handle.net/10438/708
• topic: Economia; Economia; Ciclos econômicos - Séc. XX

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).