We investigate whether business cycles are all alike computing the welfare costs of business cycles for European-Union (EU) as the solution of the problem proposed by Lucas (1987). Because these countries have a long tradition of integration and trade, it is a "natural experiment" to investigate how similar their welfare costs of business cycles are. Using standard assumptions on preferences and a reasonable reduced form for consumption, we computed welfare costs using three alternative trend-cycle decomposition methods, but focusing on the multivariate Beveridge-Nelson decomposition. Our results show that welfare costs are very different across EU countries and between US and EU countries, and thus it is a strong evidence that business cycles are not alike in Europe.
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Length: Date of creation: 2005 Date of revision: Handle: RePEc:anp:en2005:031
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Find related papers by JEL classification: E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
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Oliver J. Blanchard & Mark W. Watson, 1986.
"Are Business Cycles All Alike?,"
NBER Chapters,
in: The American Business Cycle: Continuity and Change, pages 123-180
National Bureau of Economic Research, Inc.
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