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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.
- Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium by Heylen, Freddy and Van de Kerckhove, Renaat
- Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks by Carvalho, Carlos
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.