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How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach

Author

Listed:
  • Georgarakos, Dimitris

    (European Central Bank)

  • Kim, Kwang Hwan

    (Yonsei University)

  • Coibion, Olivier

    (University of Texas at Austin)

  • Shim, Myungkyu

    (Yonsei University)

  • Lee, Myunghwan Andrew

    (New York University)

  • Gorodnichenko, Yuriy

    (University of California, Berkeley)

  • Kenny, Geoff

    (European Central Bank)

  • Han, Seowoo

    (Yonsei University)

  • Weber, Michael

    (World Bank)

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.

Suggested Citation

  • Georgarakos, Dimitris & Kim, Kwang Hwan & Coibion, Olivier & Shim, Myungkyu & Lee, Myunghwan Andrew & Gorodnichenko, Yuriy & Kenny, Geoff & Han, Seowoo & Weber, Michael, 2025. "How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach," IZA Discussion Papers 17675, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17675
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    References listed on IDEAS

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    More about this item

    Keywords

    cost of business cycles; willingness to pay; inflation;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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