# How can welfare losses after shocks be compared **URL:** \ **Category:** Optimal Policy\ **Created:** [26 July 2023 01:29 UTC](https://forum.dynare.org/t/how-can-welfare-losses-after-shocks-be-compared/22803 "2023-07-26T01:29:03Z")\ **Posts on this page:** 5\ **Page:** 1
**Author:** ![wangshiye](https://forum.dynare.org/letter_avatar_proxy/v4/letter/w/48db29/32.png) [@wangshiye](https://forum.dynare.org/u/wangshiye)\ **Post date:** [26 July 2023 01:29 UTC](https://forum.dynare.org/t/how-can-welfare-losses-after-shocks-be-compared/22803/1 "2023-07-26T01:29:03Z")
Dear Professor jpfeifer, I want to explore the effects of macroprudential policies through consumption compensation. In my model, ![image](https://forum.dynare.org/uploads/default/original/3X/c/8/c80d3b5461021d30fa58011f725c509ebf7eecc7.png) . I know to calculate the positive and negative signs of lmaba to judge whether the introduction of macro-prudential policies has brought about welfare improvement. I learned that welfare calculates the steady-state value. Then, my macro-prudential policy takes a countercyclical adjustment of the capital adequacy ratio, and the steady-state value of my macro-prudential policy model is the same as that of the benchmark model. Therefore, I think it is impossible to compare welfare losses through the consumption compensation method. May I ask, is there any other way to calculate the benefit comparison after the shock? Best wishes. ---
**Author:** ![wangshiye](https://forum.dynare.org/letter_avatar_proxy/v4/letter/w/48db29/32.png) [@wangshiye](https://forum.dynare.org/u/wangshiye)\ **Post date:** [30 July 2023 07:23 UTC](https://forum.dynare.org/t/how-can-welfare-losses-after-shocks-be-compared/22803/2 "2023-07-30T07:23:41Z")
Is there anyone else in the forum who can help me? I don’t know if it’s because I’m not clear enough? What I want to study is: Are macroprudential policies effective under exogenous shocks? Therefore, I need to compare the welfare losses of the two policies under exogenous shocks. However, I have only studied the central bank welfare loss method, and I want to use the consumption compensation method to study the welfare loss situation. But for now, I’ll only compare static welfare values using order=2. I would like to ask: Can the consumption compensation method compare the welfare loss under the shock? If so, can you give me some code to refer to? Best wishes. ---
**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\ **Post date:** [30 July 2023 12:02 UTC](https://forum.dynare.org/t/how-can-welfare-losses-after-shocks-be-compared/22803/3 "2023-07-30T12:02:20Z")
What do you mean with > [@wangshiye](#): > > I learned that welfare calculates the steady-state value. ? People typically compare conditional welfare at the steady state or unconditional welfare (search the forum, e.g. [Welfare cost of business cycles - #10 by jpfeifer](https://forum.dynare.org/t/welfare-cost-of-business-cycles/3802/10)). Both will take the stochastic properties of the model into account. The resulting number (Welfare1 in your notation) is then transformed relative to a steady state object (welfare 0) that features no shocks at all. But that latter regime is just a comparison object. ---
**Author:** ![Tim2](https://forum.dynare.org/letter_avatar_proxy/v4/letter/t/b782af/32.png) [@Tim2](https://forum.dynare.org/u/Tim2)\ **Post date:** [20 August 2024 17:26 UTC](https://forum.dynare.org/t/how-can-welfare-losses-after-shocks-be-compared/22803/4 "2024-08-20T17:26:03Z")
I have a very similar question. In my model, I have a shock and various fiscal policies/fiscal measures to counteract the shock. I want to analyze which of these policies is the most effective in mitigating the shock for households. Therefore, I also considered using welfare as a corresponding measure for this purpose. So far, I have only found a similar approach in Hinterlang et al. 2024 (starting on page 38 in the appendix, [https://papers.ssrn.com/sol3/papers.cfm?abstract\_id=4760092](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4760092) ) . However, it seems to me that they calculate the welfare-equivalent consumption at each point in time after the shock. Is this a typical approach, or does anyone know of other examples? ---
**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\ **Post date:** [21 August 2024 09:04 UTC](https://forum.dynare.org/t/how-can-welfare-losses-after-shocks-be-compared/22803/5 "2024-08-21T09:04:52Z")
I guess it depends on whether there exists one all-encapsulating number measuring the welfare in your experiment. Sometimes one number based on `t=0` recursive welfare captures everything happening later. You need to decide whether that is the case in your experiment as well.