It's a Small Small Welfare Cost of Fluctuations
Lucas  has shown that in a representative agent framework, the potential welfare gain from stabilizing consumption around its mean is small. We provide an example and some insight for why Lucas' measure is an upper bound of the welfare cost of fluctuations in walrasian economies.
References listed on IDEAS
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- Cooley, T.F. & Hansen, G.D., 1991.
"Tax Distortions in a Neoclassical Monetary Economy,"
RCER Working Papers
265, University of Rochester - Center for Economic Research (RCER).
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- Thomas F. Cooley & Gary D. Hansen, 1991. "Tax distortions in a neoclassical monetary economy," Discussion Paper / Institute for Empirical Macroeconomics 38, Federal Reserve Bank of Minneapolis.
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Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 245-272, January.
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- Bennett T. McCallum, 1988. "Real Business Cycle Models," NBER Working Papers 2480, National Bureau of Economic Research, Inc.
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