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Most Downloaded Articles
- Comparing Wealth Effects: The Stock Market versus the Housing Market by Case, Karl E./ Quigley, John M. and Shiller, Robert J.
- The Effects of the Great Recession on Central Bank Doctrine and Practice by Bernanke, Ben S.
- How have global shocks impacted the real effective exchange rates of individual euro area countries since the euro’s creation? by Bussiere, Matthieu/ Chudik, Alexander and Mehl, Arnaud
- Monetary and Macroprudential Policy Rules in a Model with House Price Booms by Kannan, Prakash/ Rabanal, Pau and Scott, Alasdair M.
The Welfare Cost of Business Cycles in an Economy with Nonclearing Markets
Citation Information: The B.E. Journal of Macroeconomics. Volume 6, Issue 3, ISSN (Online) 1534-5998, DOI: 10.2202/1534-5998.1151, January 2007
- Published Online:
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.