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On the aggregate welfare cost of Great Depression unemployment

  • Chatterjee, Satyajit
  • Corbae, Dean

The potential benefit of policies that eliminate a small likelihood of economic crises is calculated. An economic crisis is defined as an increase in unemployment of the magnitude observed during the Great Depression. For the U.S., the maximum-likelihood estimate of entering a depression is found to be about once every 83 years. The welfare gain from setting this small probability to zero can range between 1 and 7 percent of annual consumption in perpetuity. For most estimates, more than half of these large gains result from a reduction in individual consumption volatility. ; This paper supersedes Working Paper 03-20.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 54 (2007)
Issue (Month): 6 (September)
Pages: 1529-1544

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Handle: RePEc:eee:moneco:v:54:y:2007:i:6:p:1529-1544
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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