EconStor >
University of California (UC) >
UC Davis, Department of Economics >
Working Papers, Department of Economics, UC Davis >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/31339
  
Title:Macroeconomic priorities and crash states PDF Logo
Authors:Salyer, Kevin D.
Issue Date:2005
Series/Report no.:Working papers // University of California, Department of Economics 05,5
Abstract: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.
JEL:E10
E32
E60
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, UC Davis

Files in This Item:
File Description SizeFormat
505100908.pdf155.94 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/31339

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.