The welfare cost of business cycles in an economy with nonclearing markets

  1. Puch, Luis A.
  2. Portier, Franck
Journal:
Documentos de Trabajo (ICAE)

ISSN: 2341-2356

Year of publication: 2004

Issue: 3

Type: Working paper

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Abstract

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 much bigger than in a frictionless environment.

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