Welfare Costs of Business Cycles
The welfare cost of business cycles measures the benefits that would be obtained by individuals from eliminating all the macroeconomic instability in a given economy. In a seminal paper, Lucas (Models of business cycles. Yrjo Jahnsson Lectures. Oxford: Basil Blackwell, 1985) argued that these benefits are almost certain to be trivially small, especially when they are compared with the benefits that can be achieved with more growth for the post-war US economy.
KeywordsBusiness cycles Great Depression National Bureau of Economic Research Risk aversion Stabilization policy Unemployment insurance Welfare cost of business cycles
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