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How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach

Author

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

Abstract

Using repeated 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 ≈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 ≈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

  • Dimitris Georgarakos & Kwang Hwan Kim & Olivier Coibion & Myungkyu Shim & Myunghwan Andrew Lee & Yuriy Gorodnichenko & Geoff Kenny & Seowoo Han & Michael Weber, 2025. "How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach," NBER Working Papers 33476, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33476
    Note: AP EFG ME
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    Cited by:

    1. 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.
    2. Dimitris Georgarakos & Geoff Kenny & Justus Meyer & Maarten van Rooij, 2025. "How do rising temperatures affect inflation expectations?," Working Papers 843, DNB.

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • 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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