“Endogenous Volatility, Endogenous Growth, and Large Welfare Gains from Stabilization Policies” by Peng-fei WANG
Authors:
Peng-fei WANG
Cornell UniversityYi WEN
This paper makes three key contributions by showing: (i) imperfect information can cause coordination failures among imperfectly competitive firms and lead to endogenous fluctuations in economic growth; (ii) short-run volatilities can negatively affect long-run growth; and (iii) the welfare gain from further stabilizing the U.S. economy can be hundreds of times larger than that calculated by Lucas because policies designed to reduce fluctuations can generate permanently higher rates of growth.
