# Welfare cost of business cycles

**URL:** <https://forum.dynare.org/t/welfare-cost-of-business-cycles/3802>\
**Category:** Optimal Policy\
**Created:** [1 April 2014 09:39 UTC](https://forum.dynare.org/t/welfare-cost-of-business-cycles/3802 "2014-04-01T09:39:55Z")\
**Posts on this page:** 1\
**Showing post:** 2

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**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:** [2 April 2014 08:55 UTC](https://forum.dynare.org/t/welfare-cost-of-business-cycles/3802/2 "2014-04-02T08:55:29Z")

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If you set order=2 and simulate a long enough time series, Dynare will provide you with E. Given that you know the functional form for utility as well as the steady state values for c and h, you can analytically solve  
\frac{((1-\xi)\*c\_ss)^{1-\sigma}}{1-\sigma}-\varphi\frac{n\_ss^{1+\nu}}{1+\nu}=E  
for \xi.

You might also be able to use theoretical moments, but there one would need to check whether second moments based on the first order approximation a la Kim/Kim/Schaumburg/Sims are sufficient.

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