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The States vs. the states: On the Welfare Cost of Business Cycles in the U.S

  • Michel A. Robe
  • Stephane Pallage

Economic fluctuations are much stronger when measured at the state level than they are for the United States as a whole. This observation raises the question of how costly business cycles really are in the United States. Using state-level consumption data, we show that the welfare cost of consumption volatility is in fact very substantial. Indeed, in many U.S. states, the welfare gain from eliminating business cycles can exceed the gain from increasing the long-term growth rate by 1\% forever. Our findings have important implications for some key puzzles in economics and finance.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2003 with number 43.

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Date of creation: 01 Aug 2003
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Handle: RePEc:sce:scecf3:43
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