Arbeitspapier

Macroeconomic priorities and crash states

This paper reproduces Lucas's analysis of the costs of business cycles in an economy with a low probability, crash state in consumption growth. For reasonable parameter values, it is shown that the presence of a crash state dramatically increases the costs ofconsumption volatility. Specifically, for relative risk aversion around 5, households in the US economy would, in aggregate, pay over $60 billion (approximately 3% of consumption in 2001) to eliminate consumption uncertainty. The conclusion is that stabilization policy is important not for its effects on second moments but inreducing kurtosis by lowering both the probability and severity of a crash state.

Sprache
Englisch

Erschienen in
Series: Working Paper ; No. 05-5

Klassifikation
Wirtschaft
General Aggregative Models: General
Business Fluctuations; Cycles
Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Thema
Makroökonomik
Konjunktur
Soziale Kosten
Theorie

Ereignis
Geistige Schöpfung
(wer)
Salyer, Kevin D.
Ereignis
Veröffentlichung
(wer)
University of California, Department of Economics
(wo)
Davis, CA
(wann)
2005

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Salyer, Kevin D.
  • University of California, Department of Economics

Entstanden

  • 2005

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