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Abstract
This paper estimates the welfare cost of the US business cycle episodes over the period 1964-2018. Under the restriction of a balanced growth path, the representative consumer in a frictionless, competitive business cycle world would reduce GDP by around 1.3 percent each year to eliminate business cycle risk; our estimates are comparable to the benefits of stabilization by Barro (2009). The key to these results is augmentation with investment-specific shocks `a la Fisher (2006) to a standard business cycle model. |
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Keywords Welfare Cost, Business Cycles, Investment-specific Technology Shocks |
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JEL classification codes E13, E32, E60, D69 |
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