Working Paper: CEPR ID: DP4799
Authors: Franck Portier; Luis Puch
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.
Keywords: cost of business cycles; dynamic general equilibrium; nonclearing markets
JEL Codes: C63; C68; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| welfare cost of fluctuations in an economy with nonclearing markets (D59) | welfare cost of fluctuations in a frictionless economy (D69) |
| market frictions such as price rigidities and voluntary exchange rationing (D43) | inefficiencies (D61) |
| inefficiencies (D61) | underutilization of labor (J29) |
| inefficiencies (D61) | waste of intermediate goods (L99) |
| business cycle shocks (E32) | higher average consumption in frictionless economy (E21) |
| business cycle shocks (E32) | lower welfare costs in frictionless economy (D69) |