DP4799 The Welfare Cost of Business Cycles in an Economy with Non-Clearing Markets
Author(s): | Franck Portier, Luis Puch |
Publication Date: | December 2004 |
Keyword(s): | cost of business cycles, dynamic general equilibrium, non-clearing markets |
JEL(s): | C63, C68, E32 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=4799 |
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.