Growth, Cycles and Welfare:

We use a Schumpeterian model in which both the economys growth rate and its volatility are en-dogenously determined to assess some welfare and policy implications associated with business cycle ßuctuations. Because it features a higher average growth rate than its acyclical counterpart, steady state welfare is higher along the cyclical equilibrium growth path of the model. We assess the impact of alternative stabilization policies designed to smooth cyclical ßuctuations. Although, it is possible to signiÞcantly reduce the variance of output growth via simple policy measures, the welfare beneÞts are at best negligible and at worst completely offset by the resulting reduction longterm productivity growth