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.