Essays on the welfare costs of business cycles

• Grant number: 23/02720-2
• Support Opportunities: Scholarships in Brazil - Doctorate (Direct)
• Start date: October 01, 2023
• End date: November 30, 2025
• Field of knowledge: Applied Social Sciences - Economics - Social Welfare Economics
• Principal Investigator: Fábio Augusto Reis Gomes
• Grantee: Antonio Ricciardi Macedo
• Host Institution: Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto (FEARP). Universidade de São Paulo (USP). Ribeirão Preto , SP, Brazil

Abstract

As long as the consumer is risk averse, the uncertainties inherent in business cycles lead to welfare losses. In a seminal work, Lucas(1987) proposed an approach to quantify such losses, concluding, for the North American case, that this losses are very low. This result was interpreted as evidence that would be not necessary to intensify the ongoing stabilization policies. Subsequent literature has revised Lucas(1987)'s estimates by relaxing restrictive assumptions that he would have made. Persistence was added to the consumption process and different utility functions were considered to represent the preferences of the representative consumer. Also, heterogeneity among consumers was introduced. Although several advances the literature have been made, this thesis adds three important contributions. In Chapter 1, we consider that the variance of consumer innovation is not constant and describe it as a heteroskedastic process. In chapter 2, unlike the literature, which focuses on the analysis of utility functions that depend on a single consumer good, we consider the specificities of non-durable goods, durable goods and services. Thus, we propose a multivariate and heteroskedastic model in which the correlations between the shocks of these different consumption measures are taken into account. In chapter 3 we added heterogeneity by introducing rule-of-thumb consumers, which simply consume current income. Thus, the welfare cost of economic cycles is estimated for each type of consumer. These are the methodological innovations of this Thesis. In chapter 4 we developed a teaching article, since there is a gap in the grade level of material related to the welfare cost of economic cycles. (AU)