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The Welfare Costs of Business Cycle
Smoothing |
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Abstract: We investigate the welfare implications of
macroeconomic policies that eliminate output volatility. We conclude that
such policies can lead to welfare losses, even when compared with a simple
macroeconomic policy that prescribes constant rates for taxes and money
supply growth. We quantify the losses in terms of percentage points of
total consumption. We find that they are small, as often found in the
related literature. |
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