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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Revisiting the Cost of Business Cycles: A Demand Shock Channel

Vol.30, No.2, June , 55–75


English Version |  Korean Version
  •   (Assistant Professor, Graduate School of Science and Technology Policy, KAIST)

  •   (Ph.D Student, Department of Economics, Graduate School of Sogang University)

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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.


Keywords
   Welfare Cost, Business Cycles, Investment-specific Technology Shocks

JEL classification codes
   E13, E32, E60, D69
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