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The Costs of Recession

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  • Clark, Kenneth
  • Leslie, Derek
  • Symons, Elizabeth

Abstract

The paper measures the cost of business cycles by asking what proportion of consumption representative households, whose head is currently employed, would be prepared to give up to avoid the risk of unemployment. Previous estimates by Lucas suggested that the costs of macroeconomic fluctuations measured in this way are surprisingly small. The first part of the paper presents a critique of the Lucas aggregate method showing that his estimates are not robust. An alternative disaggregated framework is then developed and shows that the costs of macroeconomic fluctuations are significantly higher than those obtained by Lucas. Consequently, the view that inflation 'matters' whereas business cycles are unimportant events is questioned. Copyright 1994 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 104 (1994)
Issue (Month): 422 (January)
Pages: 20-36

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Handle: RePEc:ecj:econjl:v:104:y:1994:i:422:p:20-36

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Cited by:
  1. Stratford Douglas & Howard J. Wall, 2000. "The revealed cost of unemployment," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 1-10.
  2. Stephen Turnovsky & Marcelo Bianconi, . "The Welfare Gains from Stabilization in a Stochastically Growing Economy with Idiosyncratic Shocks and Flexible Labor Supply," Working Papers UWEC-2004-08-P, University of Washington, Department of Economics.
  3. Byron Gangnes, 2010. "The Employment Effects of Fiscal Policy: How Costly are ARRA Jobs?," Working Papers 2010-16, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
  4. Wu, Yangru & Zhang, Junxi, 1998. "Endogenous growth and the welfare costs of inflation: a reconsideration," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 465-482, March.
  5. Marco Guerrazzi, 2011. "Search And Stochastic Dynamics In The Old Keynesian Economics: A Rationale For The Shimer Puzzle," Metroeconomica, Wiley Blackwell, vol. 62(4), pages 561-586, November.

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