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On the welfare costs of business-cycle fluctuations and economic-growth variation in the 20th century and beyond

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  • Guillén, Osmani Teixeira de Carvalho
  • Issler, João Victor
  • Franco-Neto, Afonso Arinos de Mello

Abstract

The main objective of this paper is to propose a novel setup that allows estimating separately the welfare costs of the uncertainty stemming from business-cycle fluctuations and from economic-growth variation, when the two types of shocks associated with them (respectively, transitory and permanent shocks) hit consumption simultaneously. Separating these welfare costs requires dealing with degenerate bivariate distributions. Levi's Continuity Theorem and the Disintegration Theorem allow us to adequately define the one-dimensional limiting marginal distributions. Under Normality, we show that the parameters of the original marginal distributions are not affected, providing the means for calculating separately the welfare costs of business-cycle fluctuations and of economic-growth variation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 39 (2014)
Issue (Month): C ()
Pages: 62-78

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Handle: RePEc:eee:dyncon:v:39:y:2014:i:c:p:62-78

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Business cycles fluctuations; Economic-growth variation; Welfare costs; Beveridge–Nelson decomposition; Unobserved-component model;

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