This paper explores the relationship between volatility and welfare. Even though households prefer smooth streams of consumption and leisure, welfare can be increasing in the volatility of an exogenous driving force if factor supply is sufficiently elastic. We provide some analytical results for...

Shimer (2005) demonstrated that aggregate productivity shocks in a standard matching model cause fluctuations in key labor market statistics---such as the job-finding rate, the vacancy/unemployment ratio, and the unemployment rate---that are too small by an order of magnitude. This paper shows...