We study the welfare implications of uncertainty in business cycle models. In the modern business cycle literature, multiplicative real shocks to production and/or preferences play an important role as the impulses that produce aggregate fluctuations. Introducing shocks in this way has the...

This paper studies fluctuations in a real business cycle model when there is a risk neutral agent present to offer insurance to workers. This economy is compared with one in which there is no risk neutral agent but labor is indivisible. In static models it is difficult to distinguish the risk...