The Welfare Cost of Business Cycles in an Economy with Non-Clearing Markets
In this Paper we measure the welfare cost of fluctuations in a simple representative agent economy with non-clearing markets. The market friction we consider involves price rigidities and a voluntary exchange-rationing scheme. These features are incorporated into an otherwise standard neoclassical growth model. We show that the frictions we introduce make the losses from fluctuations much bigger than in a frictionless environment.
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