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How costly are business cycle volatility and inflation? A Vox Populi approach

Author

Listed:
  • Georgarakos, Dimitris
  • Kim, Kwang Hwan
  • Coibion, Olivier
  • Shim, Myungkyu
  • Lee, Myunghwan Andrew
  • Gorodnichenko, Yuriy
  • Kenny, Geoff
  • Han, Seowoo
  • Weber, Michael

Abstract

Using surveys of households across thirteen countries, we study how much individuals would be willing to pay to eliminate business cycles. These direct estimates are much higher than traditional measures following Lucas (2003): on average, households would be prepared to sacrifice around 5-6% of their lifetime consumption to eliminate business cycle fluctuations. A similar result holds for inflation: to bring inflation to their desired rate, individuals would be willing to sacrifice around 5% of their consumption. Willingness to pay to eliminate business cycles and inflation is generally higher for those whose consumption is more pro-cyclical, those who are more uncertain about the economic outlook, and those who live in countries with greater historical volatility.

Suggested Citation

  • Georgarakos, Dimitris & Kim, Kwang Hwan & Coibion, Olivier & Shim, Myungkyu & Lee, Myunghwan Andrew & Gorodnichenko, Yuriy & Kenny, Geoff & Han, Seowoo & Weber, Michael, 2025. "How costly are business cycle volatility and inflation? A Vox Populi approach," CEPR Discussion Papers 20088, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20088
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    File URL: https://cepr.org/publications/DP20088
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    Keywords

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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