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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, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:20088
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    Cited by:

    1. is not listed on IDEAS
    2. Li, Geng & Sinha, Nitish Ranjan, 2025. "Gauging inflation aversion through the lens of consumer sentiment," Economics Letters, Elsevier, vol. 256(C).
    3. Dimitris Georgarakos & Geoff Kenny & Justus Meyer & Maarten van Rooij, 2025. "How do rising temperatures affect inflation expectations?," Working Papers 843, DNB.
    4. Olivier Coibion & Yuriy Gorodnichenko, 2025. "Inflation, Expectations and Monetary Policy: What Have We Learned and to What End?," NBER Working Papers 33858, National Bureau of Economic Research, Inc.
    5. Kelsey O'Flaherty, 2026. "A New Reason to Hate Grocery Inflation: Measuring and Interpreting Inflation Heterogeneity," Finance and Economics Discussion Series 2026-001, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    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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