HKUST Library Institutional Repository Banner

HKUST Institutional Repository >
Center for Economic Development  >
CED Working Papers >

Please use this identifier to cite or link to this item:
Title: Business cycle uncertainty and economic welfare
Authors: Cho, Jang-Ok
Cooley, Thomas F.
Keywords: Welfare
Business cycle
Issue Date: May-2003
Series/Report no.: Working Papers ; 0303
Abstract: We study the welfare implications of uncertainty in business cycle models. In the modern business cycle literature, multiplicative real shocks to production and/or preferences play an important role as the impulses that produce aggregate fluctuations. Introducing shocks in this way has the implication that fluctuating economies may enjoy higher welfare than their steady state counterparts. This occurs because purposeful agents make use of uncertainty in their favor. The result holds for a range of reasonable parameter values and in many models considered in the business cycle literature. One implication is that the welfare cost estimates which have been obtained in the literature may be biased and possibly seriously.
Appears in Collections:CED Working Papers

Files in This Item:

File Description SizeFormat
0303.pdf362KbAdobe PDFView/Open

All items in this Repository are protected by copyright, with all rights reserved.