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|dc.description.abstract||While this is typically ignored, the properties of the stochastic process followedby aggregate consumption affect the estimates of the costs of fluctuations. This paperpursues two approaches to modelling aggregate consumption dynamics and to measuringhow much society dislikes fluctuations, one statistical and one economic. The statisticalapproach estimates the properties of consumption and calculates the cost of havingconsumption fluctuating around its mean growth. The paper finds that the persistenceof consumption is a crucial determinant of these costs and that the high persistencein the data severely distorts conventional measures. It shows how to compute validestimates and confidence intervals. The economic approach uses a calibrated modelof optimal consumption and measures the costs of eliminating income shocks. Thisuncovers a further cost of uncertainty, through its impact on precautionary savings andinvestment. The two approaches lead to costs of fluctuations that are higher than thecommon wisdom, between 0.5% and 5% of per capita consumption.||en_US|
|dc.relation.ispartofseries|||aDiscussion papers in economics / Princeton University, Woodrow Wilson School of Public and International Affairs |x233||en_US|
|dc.subject.keyword||Costs of fluctuations ; Models of aggregate consumption ; Consumption persistence||en_US|
|dc.title||The time-series properties of aggregate consumption: implications for the costs of fluctuations||en_US|
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