RECURSIVE PREFERENCE, MOOD FLUCTUATION AND WELFARE COST OF REDUCED GROWTH

This paper studies the mood fluctuation of a typical consumer with recursive preference and the welfare cost of reduced growth and business cycle. We estimate the welfare cost using discrete recursive function as well as conduct simulation in order to compare our results with other existing research findings. Our findings are in line with traditional literature whereby the welfare cost of reduced growth is larger than that of business cycle; but our results show that these past measures understate the welfare cost of reduced growth and business cycle.