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Asset liquidity and the welfare costs of business cycles

2024-10-31Documento de Trabalho Acesso aberto
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dc.contributor.authorBrinca, Pedro
dc.contributor.authorDuarte, João
dc.contributor.authorFerreira, Ana Melissa
dc.contributor.authorNóbrega, Valter
dc.date.accessioned2024-11-08T10:16:03Z
dc.date.available2024-11-08T10:16:03Z
dc.date.issued2024-10-31
dc.description.abstractIn this paper, we revisit the question of what the welfare costs of business cycles are with new insights. The seminal paper by Lucas (1987) found welfare costs to be negligible at around 1%, but subsequent literature focused on finding mechanisms that could rationalize larger welfare costs. Our study builds on recent research that incorporates incomplete markets, adjustment costs, and marginal propensities to consume to show that welfare costs can be substantial. Our calculations indicate that eliminating business cycle fluctuations would result in a 1.25% increase in welfare, as measured in consumption equivalents. Furthermore, using a 2-asset HANK model, we find a welfare cost of 2.6%. This result arises from considering portfolio adjustment costs, which generate a distribution of marginal propensities to consume along the income dimension that is empirically plausible and produces a share of (rich and poor) hand-to-mouth households that is consistent with recent findings. In periods of recession, these values rise to 11.1%. These results are particularly driven by effects from the price rigidity.pt_PT
dc.description.versioninfo:eu-repo/semantics/submittedVersionpt_PT
dc.identifier.citationBrinca, Pedro, Duarte, João, Ferreira, Ana Melissa, Nóbrega, Valter. Asset liquidity and the welfare costs of business cycles. (October 2024) Nova SBE Working Paper Series No. 667pt_PT
dc.identifier.urihttp://hdl.handle.net/10362/174826
dc.language.isoengpt_PT
dc.peerreviewedyespt_PT
dc.publisherNova School of Business and Economicspt_PT
dc.relationUID/ECO/00124/2019pt_PT
dc.relationUIDB/00124/2020pt_PT
dc.relationPINFRA/22209/2016pt_PT
dc.relationCEECIND/02747/2018pt_PT
dc.relationSFRH/BD/144996/2019pt_PT
dc.relation2020.09544.BDpt_PT
dc.relation.ispartofseriesNova SBE Working Paper Series;667
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/pt_PT
dc.subjectWelfare costspt_PT
dc.subjectBusiness cyclespt_PT
dc.subjectLiquiditypt_PT
dc.subjectHand-to-mouthpt_PT
dc.titleAsset liquidity and the welfare costs of business cyclespt_PT
dc.typeworking paper
dspace.entity.typePublication
oaire.citation.endPage33pt_PT
oaire.citation.startPage1pt_PT
person.familyNameSoares Brinca
person.familyNameDuarte
person.familyNameNóbrega
person.givenNamePedro Miguel
person.givenNameJoão
person.givenNameValter
person.identifier.ciencia-idE318-F261-9C65
person.identifier.orcid0000-0002-3399-6081
person.identifier.orcid0000-0001-5856-4181
person.identifier.orcid0009-0006-9444-7015
rcaap.rightsopenAccesspt_PT
rcaap.typeworkingPaperpt_PT
relation.isAuthorOfPublication36b8218c-e44f-4d82-bf37-dc930ae1fcb0
relation.isAuthorOfPublicationc0b4b1f9-d4cb-4267-8be6-f4255d0add48
relation.isAuthorOfPublicatione64bdc69-4c5c-4d20-a792-4f01524227e8
relation.isAuthorOfPublication.latestForDiscovery36b8218c-e44f-4d82-bf37-dc930ae1fcb0

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