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dc.contributor.authorChauvin, Kyle
dc.contributor.authorLaibson, David I.
dc.contributor.authorMollerstrom, Johanna Britta
dc.date.accessioned2012-11-21T21:58:21Z
dc.date.issued2011
dc.identifier.citationChauvin, Kyle, David I. Laibson, and Johanna Britta Mollerstrom. 2011. Asset bubbles and the cost of economic fluctuations. Journal of Money, Credit and Banking 43(S1): 233–260.en_US
dc.identifier.issn0022-2879en_US
dc.identifier.issn1538-4616en_US
dc.identifier.urihttp://nrs.harvard.edu/urn-3:HUL.InstRepos:9938146
dc.description.abstractLucas (1987, 2003) estimates that the cost of economic fluctuations is low; a social planner would pay no more than 0.1% of (permanent) consumption to eliminate all future business cycle fluctuations. The current paper extends Lucas’ calculations by studying the costs of fluctuations arising from asset bubbles. We estimate two classes of costs: consumption volatility due to asset bubbles in a representative agent economy and consumption volatility that arises because households have heterogeneous exposure to the bubble assets. We show that the magnitude of welfare costs is primarily driven by the existence of heterogeneity. Our benchmark calibration implies that the asset bubbles of the last decade generated a social welfare cost equal to a permanent 3% reduction in the level of national consumption. If assets are held proportionately across the population, these welfare costs fall by an order of magnitude. Our calculations are sensitive to the details of the calibration, including the degree of balance sheet and trading heterogeneity, the coefficient of relative risk aversion, and the magnitude of the asset bubble. Our preferred specifications generate welfare costs ranging from 1% to 10% of (permanent) national consumption.en_US
dc.description.sponsorshipEconomicsen_US
dc.language.isoen_USen_US
dc.publisherWileyen_US
dc.relation.isversionofdoi:10.1111/j.1538-4616.2011.00416.xen_US
dash.licenseOAP
dc.subjectwelfare costsen_US
dc.subjectfluctuationsen_US
dc.subjectasset bubblesen_US
dc.subjectheterogeneityen_US
dc.titleAsset Bubbles and the Cost of Economic Fluctuationsen_US
dc.typeJournal Articleen_US
dc.description.versionAuthor's Originalen_US
dc.relation.journalJournal of Money, Credit and Bankingen_US
dash.depositing.authorLaibson, David I.
dc.date.available2012-11-21T21:58:21Z
dc.identifier.doi10.1111/j.1538-4616.2011.00416.x*
dash.contributor.affiliatedMollerstrom, Johanna Britta
dash.contributor.affiliatedLaibson, David


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