The welfare costs of uncertainty: Cross-country evidence

The paper estimates the welfare costs of uncertainty for six different economic groups of countries. The source of uncertainty is both economic fluctuations and macroeconomic disasters. For each of the groups of countries, the trend growth rate, growth rate volatility, disaster probability, and the size distribution of disasters are estimated. Adjacent groups differ significantly in terms of growth and uncertainty, but within each group, the welfare gains of growth and the welfare cost of uncertainty are generally in the same magnitude. However, analysis shows that small increases in growth may have a more significant impact on the welfare costs of uncertainty than large decreases in uncertainty.