by Dimitris Georgarakos
CEPR
How costly are business cycles and inflation? This column reports on a survey that asked consumers across 13 countries how much consumption they would be willing to sacrifice to eliminate business cycles. Contrary to the prediction of standard macroeconomic models that business cycle fluctuations are close to costless, consumers reported that they would give up around 5% of their consumption. This is of the same order of magnitude as what they would give up to bring inflation to their desired level.
Imagine a world where macroeconomic ups and downs don’t disrupt our lives. No recessions that put your job at greater risk, no skyrocketing prices, no financial crises, etc. Sounds ideal, right? But how much would you be willing to sacrifice to make that a reality?