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The B.E. Journal of Macroeconomics

Editor-in-Chief: Abraham, Arpad / Cavalcanti, Tiago

Ed. by Carceles-Poveda , Eva / Kambourov, Gueorgui / Lambertini, Luisa / Ruhl, Kim

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The Welfare Cost of Business Cycles in an Economy with Nonclearing Markets

Franck Portier1 / Luis A. Puch2

1University of Toulouse,

2FEDEA, Universidad Complutense and ICAE,

Citation Information: The B.E. Journal of Macroeconomics. Volume 6, Issue 3, ISSN (Online) 1534-5998, DOI: 10.2202/1534-5998.1151, January 2007

Publication History

Published Online:
2007-01-15

In this paper we measure the welfare cost of fluctuations in a simple representative agent economy with nonclearing 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 four times bigger than in a frictionless environment.

Keywords: cost of business cycles; nonclearing markets; dynamic general equilibrium

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