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Working Paper 2006-032C

"Endogenous Volatility, Endogenous Growth, and Large Welfare Gains from Stabilization Policies"
by Pengfei Wang, and Yi Wen

This paper constructs an endogenous growth model to explain the stylized fact that the growth rate of GDP is negatively related to its standard deviation. We also show that the welfare gain from further stabilizing the U.S. economy can be several orders larger than that calculated by Lucas (1987) because policies designed to reduce fluctuations can generate permanently higher rates of growth.

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Category > Monetary Policy/Macroeconomics
Author > Yi Wen
Research Papers and Publications: JEL Code > E12
Research Papers and Publications: JEL Code > E32
Research Papers and Publications: JEL Code > O40