EMPCT Working Paper Series No. 2025-01
66 pages | PDF Download | PDF in Browser
Citation:
Georgarakos, Dimitris, Kwang Hwan Kim, Olivier Coibion, Myungkyu Shim, Myunghwan Andrew Lee, Yuriy Gorodnichenko, Geoff Kenny, Seowoo Han, and Michael Weber, “How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach”, February 2025.
Dimitris Georgarakos
European Central Bank & CEPR
Kwang Hwan Kim
Yonsei University
Olivier Coibion
UT Austin & NBER
Myungkyu Shim
Yonsei University
Myunghwan Andrew Lee
New York University
Yuriy Gorodnichenko
UC Berkeley, CEPR, & NBER
Geoff Kenny
European Central Bank
Seowoo Han
Yonsei University
Michael Weber
Chicago Booth, CEPR, & NBER
Abstract
Using surveys of households across thirteen countries, we study how much individuals would be willing to pay to eliminate business cycles. These direct estimates are much higher than traditional measures following Lucas (2003): on average, households would be prepared to sacrifice around 5-6% of their lifetime consumption to eliminate business cycle fluctuations. A similar result holds for inflation: to bring inflation to their desired rate, individuals would be willing to sacrifice around 5% of their consumption. Willingness to pay to eliminate business cycles and inflation is generally higher for those whose consumption is more pro-cyclical, those who are more uncertain about the economic outlook, and those who live in countries with greater historical volatility.
