Working Paper: NBER ID: w29009
Authors: George M. Constantinides
Abstract: I estimate welfare benefits of eliminating idiosyncratic consumption shocks unrelated to the business cycle as 47.3% of household utility and benefits of eliminating idiosyncratic shocks related to the business cycle as 3.4% of utility. Estimates of the former substantially exceed earlier ones because I distinguish between idiosyncratic shocks related/unrelated to the business cycle, estimate the negative skewness of shocks, target moments of idiosyncratic shocks from household-level CEX data, and target market moments. Benefits of eliminating aggregate shocks are 7.7% of utility. Policy should focus on insuring idiosyncratic shocks unrelated to the business cycle, such as the death of a household’s prime wage earner and job layoffs not necessarily related to recessions.
Keywords: No keywords provided
JEL Codes: D31; D52; E21; E24; E32; E44; G01; G12; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Eliminating idiosyncratic consumption shocks unrelated to the business cycle (E39) | Household utility (D19) |
| Eliminating idiosyncratic consumption shocks related to the business cycle (D15) | Household utility (D19) |
| Eliminating aggregate shocks (E19) | Household utility (D19) |