Markups, gaps and the welfare costs of business fluctuations

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The Review of Economics and Statistics, February 2007, Vol. 89, No. 1, pp. 44-59
http://hdl.handle.net/10230/1064
To cite or link this document: http://hdl.handle.net/10230/1064
dc.contributor.author Galí, Jordi
dc.contributor.author Gertler, Mark
dc.contributor.author López-Salido, J. David
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.issued 2005-05-01
dc.identifier.citation The Review of Economics and Statistics, February 2007, Vol. 89, No. 1, pp. 44-59
dc.identifier.uri http://hdl.handle.net/10230/1064
dc.description.abstract In this paper we present a simple theory-based measure of the variations in aggregate economic efficiency: the gap between the marginal product of labor and the household’s consumption/leisure tradeoff. We show that this indicator corresponds to the inverse of the markup of price over social marginal cost, and give some evidence in support of this interpretation. We then show that, with some auxilliary assumptions our gap variable may be used to measure the efficiency costs of business fluctuations. We find that the latter costs are modest on average. However, to the extent the flexible price equilibrium is distorted, the gross efficiency losses from recessions and gains from booms may be large. Indeed, we find that the major recessions involved large efficiency losses. These results hold for reasonable parameterizations of the Frisch elasticity of labor supply, the coefficient of relative risk aversion, and steady state distortions.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 836
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Markups, gaps and the welfare costs of business fluctuations
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2014-06-03T07:14:13Z
dc.subject.keyword Macroeconomics and International Economics
dc.subject.keyword business cycles
dc.subject.keyword countercyclical markups
dc.subject.keyword welfare costs
dc.rights.accessRights info:eu-repo/semantics/openAccess


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