Welfare Costs of Business Cycles in Turkey


Yilmaz E.

METROECONOMICA, vol.65, no.2, pp.195-211, 2014 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 65 Issue: 2
  • Publication Date: 2014
  • Doi Number: 10.1111/meca.12033
  • Title of Journal : METROECONOMICA
  • Page Numbers: pp.195-211

Abstract

How large are welfare costs related to economic aggregate fluctuations is a topic of great concern among economists at least since Lucas's (1987) model. Our analysis assesses the magnitude of such costs for Turkey by means of two approaches: aggregate and disaggregate. The former approach uses aggregate data employing three alternative trend-cycle decomposition methods which are Lucas' classical set-up with deterministic linear trend for consumption, Hodrick and Prescott filter and one in which consumption trend is stochastic and whose implementation is performed using Beveridge-Nelson decomposition. The results of both approaches suggest that Turkey has high welfare costs associated with business cycles.