Discussion paper

DP4799 The Welfare Cost of Business Cycles in an Economy with Non-Clearing Markets

In this Paper we measure the welfare cost of fluctuations in a simple representative agent economy with non-clearing markets. The market friction we consider involves price rigidities and a voluntary exchange-rationing scheme. These features are incorporated into an otherwise standard neoclassical growth model. We show that the frictions we introduce make the losses from fluctuations much bigger than in a frictionless environment.

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Citation

Portier, F and L Puch (2004), ‘DP4799 The Welfare Cost of Business Cycles in an Economy with Non-Clearing Markets‘, CEPR Discussion Paper No. 4799. CEPR Press, Paris & London. https://cepr.org/publications/dp4799