The Market Cost of Business Cycle Fluctuations

• 成果类型: Article; Early Access
• 署名作者: Ghosh, Anisha; Julliard, Christian; Stutzer, Michael J.
• 署名单位: McGill University; University of London; London School Economics & Political Science; University of Colorado System; University of Colorado Boulder
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.00484
• 发表日期: 2026
• 关键词: aggregate uncertainty; business cycle risk; Pricing kernel; Empirical Likelihood; smoothed empirical likelihood

摘要

We propose a novel approach to measure the cost of aggregate economic fluctuations that does not require complete specification of investors' risk preferences or their beliefs. With data on consumption and asset prices, an information-theoretic method is used to recover an information kernel (I-SDF). The I-SDF prices asset returns much better than tightly parametrized structural models, thereby offering a reliable candidate for the measurement of the welfare cost of business cycles. Our method enables the estimation of both the unconditional (or, average) cost of fluctuations, as well as the cost conditional on the state of the economy. We find that the cost of fluctuations is strongly time varying and countercyclical and that the cost of business cycle fluctuations is substantial, accounting for a quarter to a third of the cost of all consumption uncertainty.