The potential benefit of policies that eliminate a small likelihood of economic crises is calculated. An economic crisis is defined as an increase in unemployment of the magnitude observed during the Great Depression. For the U.S., the maximum likelihood estimate of entering a depression is found to be about once every 83 years. The welfare gain from setting this small probability to zero can range between 1% and 7% of annual consumption in perpetuity. For most estimates, more than half of these large gains results from a reduction in individual consumption volatility.
Description
On the aggregate welfare cost of Great Depression unemployment
%0 Journal Article
%1 Chatterjee:JME:2007
%A Chatterjee, Satyajit
%A Corbae, Dean
%D 2007
%J Journal of Monetary Economics
%K consumption disaster welfare
%N 6
%P 1529-1544
%R http://dx.doi.org/10.1016/j.jmoneco.2007.03.002
%T On the Aggregate Welfare Cost of Great Depression unemployment
%U http://www.sciencedirect.com/science/article/pii/S0304393207000311
%V 54
%X The potential benefit of policies that eliminate a small likelihood of economic crises is calculated. An economic crisis is defined as an increase in unemployment of the magnitude observed during the Great Depression. For the U.S., the maximum likelihood estimate of entering a depression is found to be about once every 83 years. The welfare gain from setting this small probability to zero can range between 1% and 7% of annual consumption in perpetuity. For most estimates, more than half of these large gains results from a reduction in individual consumption volatility.
@article{Chatterjee:JME:2007,
abstract = {The potential benefit of policies that eliminate a small likelihood of economic crises is calculated. An economic crisis is defined as an increase in unemployment of the magnitude observed during the Great Depression. For the U.S., the maximum likelihood estimate of entering a depression is found to be about once every 83 years. The welfare gain from setting this small probability to zero can range between 1% and 7% of annual consumption in perpetuity. For most estimates, more than half of these large gains results from a reduction in individual consumption volatility. },
added-at = {2014-10-22T23:33:01.000+0200},
author = {Chatterjee, Satyajit and Corbae, Dean},
biburl = {https://www.bibsonomy.org/bibtex/2f67068dd0da7e5ebd1fafe9fbb082fee/fcqms},
description = {On the aggregate welfare cost of Great Depression unemployment},
doi = {http://dx.doi.org/10.1016/j.jmoneco.2007.03.002},
interhash = {e055f975f0c23b3adb1fb6430c6d4d28},
intrahash = {f67068dd0da7e5ebd1fafe9fbb082fee},
issn = {0304-3932},
journal = {Journal of Monetary Economics },
keywords = {consumption disaster welfare},
number = 6,
pages = {1529-1544},
timestamp = {2014-10-22T23:33:01.000+0200},
title = {On the Aggregate Welfare Cost of Great Depression unemployment },
url = {http://www.sciencedirect.com/science/article/pii/S0304393207000311},
volume = 54,
year = 2007
}