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The Costs of Recession

Author

Listed:
  • 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.

Suggested Citation

  • Clark, Kenneth & Leslie, Derek & Symons, Elizabeth, 1994. "The Costs of Recession," Economic Journal, Royal Economic Society, vol. 104(422), pages 20-36, January.
    • Handle: RePEc:ecj:econjl:v:104:y:1994:i:422:p:20-36
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    Cited by:

    1. 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.
    2. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2005. "Insurance within the Firm," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1054-1087, October.
    3. Luigi Guiso & Luigi Pistaferri, 2020. "The insurance role of the firm," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 45(1), pages 1-23, March.
    4. Olivier Davanne & Thierry Pujol, 1996. "Assurance et échanges de risque sur le marché du travail," Économie et Statistique, Programme National Persée, vol. 291(1), pages 151-169.
    5. Turnovsky, Stephen J. & Bianconi, Marcelo, 2005. "Welfare Gains From Stabilization In A Stochastically Growing Economy With Idiosyncratic Shocks And Flexible Labor Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 9(3), pages 321-357, June.
    6. Stratford Douglas & Howard J. Wall, 2000. "The revealed cost of unemployment," Review, Federal Reserve Bank of St. Louis, vol. 82(Mar), pages 1-10.
    7. 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.
    8. Ensar Yılmaz, 2014. "Welfare Costs of Business Cycles in Turkey," Metroeconomica, Wiley Blackwell, vol. 65(2), pages 195-211, May.
    9. Seulki Chung, 2023. "Real-time Prediction of the Great Recession and the Covid-19 Recession," Papers 2310.08536, arXiv.org, revised Mar 2024.
    10. Salas Bahamón, Luz Magdalena & Sánchez Torres, Fabio, 2004. "How do the Colombian Families Respond to the Changes in the Economic Conditions?," IDB Publications (Working Papers) 4397, Inter-American Development Bank.
    11. 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.

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