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Discussion Paper Details

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

Author(s): Franck Portier and Luis Puch

Publication Date: December 2004

Keyword(s): cost of business cycles, dynamic general equilibrium and non-clearing markets

Programme Area(s): International Macroeconomics

Abstract: 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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Bibliographic Reference

Portier, F and Puch, L. 2004. 'The Welfare Cost of Business Cycles in an Economy with Non-Clearing Markets'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4799