Financial Innovations, Money Demand, and the Welfare Cost of Inflation PDF Download
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Author: Aleksander Berentsen
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Aleksander Berentsen
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Mr.Jose De Gregorio
Publisher: International Monetary Fund
ISBN: 145193128X
Category : Business & Economics
Languages : en
Pages : 34
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This paper examines the welfare effects of mitigating the costs of inflation. In a simple model where money reduces transaction costs, a fall in the costs of inflation is equivalent to financial innovation. This can be caused by paying interest on deposits, indexing money, or “dollarizing.” Results indicate that financial innovation raises welfare in low inflation economies while reducing it in high inflation economies, due to the offsetting indirect effect of higher inflation to finance the budget.
Author: Orazio P. Attanasio
Publisher:
ISBN:
Category :
Languages : de
Pages : 0
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Author: Orazio Attanasio
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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We use microeconomic data on households to estimate the parameters of the demand for currency derived from a generalized Baumol-Tobin model. Our data set contains information on average currency, deposits, and other interest-bearing assets; the number of trips to the bank; the size of withdrawals; and ownership and use of ATM cards. We model the demand for currency accounting for adoption of new transaction technologies and the decision to hold interest-bearing assets. The interest rate and expenditure flow elasticities of the demand for currency are close to the theoretical values implied by standard inventory models. However, we find significant differences between individuals with an ATM card and those without. The estimates of the demand for currency allow us to calculate a measure of the welfare cost of inflation analogous to Bailey's triangle, but based on a rigorous microeconometric framework. The welfare cost of inflation varies considerably within the population but never turns out to be very large (about 0.1 percent of consumption or less). Our results are robust to various changes in the econometric specification. In addition to the main results based on the average stock of currency, the model receives further support from the analysis of the number of trips to and average withdrawals from the bank and the ATM.
Author:
Publisher:
ISBN:
Category : Electronic books
Languages : en
Pages : 56
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'This paper calculates the welfare cost of inflation by focusing on distortions and costs that inflation poses on households who use money for transactions to avoid alternative means of payment and on the losses inflicted on the holders of public debt arising from unexpected inflation. In doing so, we take into account of the role of financial innovation that reduces over time the dependence of households on money to make transactions. We find a sizable aggregate welfare cost of money holdings, but lower than those found in previous studies. The difference mainly comes from the incorporation of financial innovation in our studies. Across households, the old and middle-aged and the poor face higher costs from inflation much more than the young and the rich. Costs are expected to be lower for future generations due to financial innovation'--Non-technical summary.
Author: Peter Nathan Ireland
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 17
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"Post-1980 U.S. data trace out a stable long-run money demand relationship of Cagan's semi-log form between the M1-income ratio and the nominal interest rate, with an interest semi-elasticity below 2. Integrating under this money demand curve yields estimates of the welfare costs of modest departures from Friedman's zero nominal interest rate rule for the optimum quantity of money that are quite small. The results suggest that the Federal Reserve's current policy, which generates low but still positive rates of inflation, provides an adequate approximation in welfare terms to the alternative of moving all the way to the Friedman rule"--National Bureau of Economic Research web site
Author: Jonathan Benchimol
Publisher:
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Category :
Languages : en
Pages : 0
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This paper presents an analysis of the stimulants and consequences of money demand dynamics. By assuming that household's money holdings and consumption preferences are not separable, we demonstrate that the interest-elasticity of demand for money is a function of the household's preference to hold real balances, the extent to which these preferences are not separable in consumption and real balances, and trend inflation. An empirical study of U.S. data revealed that there was a gradual fall in the interest elasticity of money demand of approximately one-third during the 1970s due to high trend inflation. A further decline in the interest-elasticity of the demand for money was observed in the 1980s due to the changing household preferences that emerged in response to financial innovation. These developments led to a reduction in the welfare cost of inflation that subsequently explains the rise in monetary neutrality observed in the data.
Author: Kenneth Manvel Emery
Publisher:
ISBN:
Category : Demand for money
Languages : en
Pages : 396
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Author: Rik W. Hafer
Publisher:
ISBN:
Category : Demand for money
Languages : en
Pages : 16
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Author: Robert E. Lucas (Jr)
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 54
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