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It’s a Small Small Welfare Cost of Fluctuations

  • Franck Portier

    ()

    (Université de Toulouse)

  • Luis A. Puch

    ()

    (Universidad Complutense de Madrid, Departamento de Economía Cuantitativa; Instituto Complutense de Análisis Económico (ICAE))

Lucas [1987] 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.

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File URL: http://eprints.ucm.es/7908/1/0513.pdf
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Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 0513.

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Length: 9 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:ucm:doicae:0513
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  1. Per Krusell & Anthony A. Smith, Jr., . "On the Welfare Effects of Eliminating Business Cycles," GSIA Working Papers 243, Carnegie Mellon University, Tepper School of Business.
  2. 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.
  3. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 31-34, January.
  4. Bennett T. McCallum, 1988. "Real Business Cycle Models," NBER Working Papers 2480, National Bureau of Economic Research, Inc.
  5. Albert Marcet & Guido Lorenzoni, 1998. "Parameterized expectations approach; Some practical issues," Economics Working Papers 296, Department of Economics and Business, Universitat Pompeu Fabra.
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