Uncertainty about welfare effects of consumption fluctuations

This paper proposes Bayesian estimates for welfare effects of consumption fluctuations and growth. Annual data from 82 developed and developing countries indicate a large degree of uncertainty as regards point estimates. Moreover, the comparison between the welfare gain from consumption stabilization and the welfare gain from growth yields inconclusive results for many developed and developing countries. These findings suggest the need for caution in drawing policy conclusions from point estimates.

► I propose Bayesian estimates for welfare effects of consumption fluctuations. ► Data from 82 countries show a large degree of uncertainty. ► Growth versus stabilization comparison yields inconclusive results in many cases. ► There is a need for caution in drawing policy conclusions from point estimates.