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| Author: | Storesletten, K. Telmer, C. I. Yaron, A. |
| Title: | The welfare cost of business cycles revisited: finite lives and cyclical variation in idiosyncratic risk |
| Journal: | European Economic Review
2001 : JUN, VOL. 45:7, p. 1311-1339 |
| Index terms: | BUSINESS CYCLES RISK WELFARE |
| Language: | eng |
| Abstract: | This paper investigates the welfare costs of business cycles in a heterogenous agent, overlapping generations economy which is distinguished by idiosyncratic labor market risk. Aggregate variation arises both in terms of aggregate productivity shocks and countercyclical variation in the volatility of idiosyncratic shocks. Based on both aggregate data and microeconomic data from the Panel Study on Income Dynamics, the authors find the welfare benefits of eliminating aggregate variation to be large - an order of magnitude larger than those originally documented by Lucas (1987). |
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