The welfare cost of macroeconomic uncertainty in the post-war period

• Autor(a) principal: Franco Neto, Afonso Arinos de Mello
• Data de Publicação: 2005
• Outros Autores: Issler, João Victor, 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/10438/363
• topic: Welfare costs of business cycles; Beveridge-Nelson decomposition; Economia; Economia; Ciclos econômicos - Modelos econométricos; Incerteza

Lucas (1987) has shown the surprising result that the welfare cost of business cycles is quite small. Using standard assumptions on preferences and a fully-áedged econometric model we computed the welfare costs of macroeconomic uncertainty for the post-WWII era using the multivariate Beveridge-Nelson decomposition for trends and cycles, which considers not only business-cycle uncertainty but also uncertainty from the stochastic trend in consumption. The post-WWII period is relatively quiet, with the welfare costs of uncertainty being about 0:9% of per-capita consumption. Although changing the decomposition method changed substantially initial results, the welfare cost of uncertainty is qualitatively small in the post-WWII era - about $175.00 a year per-capita in the U.S. We also computed the marginal welfare cost of macroeconomic uncertainty using this same technique. It is about twice as large as the welfare cost ñ$350.00 a year per-capita.