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Author: Max Gillman
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The paper presents the welfare cost of inflation in a banking time economy that models exchange credit through a bank production approach. The estimate of welfare cost uses fundamental parameters of utility and production technologies. It is compared to a cash-only economy, and a Lucas (2000) shopping economy without leisure, as special cases. The paper estimates the welfare cost of a 10% inflation rate instead of zero, for comparison to other estimates, as well as the cost of a 2% inflation rate instead of a zero inflation rate. The zero rate is specified as the US inflation rate target in the 1978 Employment Act amendments. The paper provides a conservative welfare cost estimate of 2% inflation instead of zero at $33 billion a year. Estimates of the percent of government expenditure that can be financed through a 2% vs. zero inflation rate are also provided.
Author: Max Gillman
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The paper presents the welfare cost of inflation in a banking time economy that models exchange credit through a bank production approach. The estimate of welfare cost uses fundamental parameters of utility and production technologies. It is compared to a cash-only economy, and a Lucas (2000) shopping economy without leisure, as special cases. The paper estimates the welfare cost of a 10% inflation rate instead of zero, for comparison to other estimates, as well as the cost of a 2% inflation rate instead of a zero inflation rate. The zero rate is specified as the US inflation rate target in the 1978 Employment Act amendments. The paper provides a conservative welfare cost estimate of 2% inflation instead of zero at $33 billion a year. Estimates of the percent of government expenditure that can be financed through a 2% vs. zero inflation rate are also provided.
Author: Mr.Jose De Gregorio
Publisher: International Monetary Fund
ISBN: 145193128X
Category : Business & Economics
Languages : en
Pages : 34
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Book Description
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:
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ISBN:
Category : Electronic books
Languages : en
Pages : 56
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Book Description
'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: Clark A. Burdick
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 56
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Author: Pablo Kurlat
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Since bank deposits and currency are substitutes and banks have monopoly power, higher nominal interest rates lead to higher deposit spreads. This raises the cost of transaction services, increases bank profits and attracts entry into the banking sector. Taking these effects into account, a one percentage point increase in inflation has a welfare cost of 0.086% of GDP, 6.9 times higher than traditional estimates.
Author: Lian Wang
Publisher: VDM Publishing
ISBN: 9783836455251
Category : Business & Economics
Languages : en
Pages : 232
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Book Description
Why should central banks fight against inflation? To answer this question, understanding the magnitude of welfare cost of inflation is important and becomes an active research field. Economists always make some assumptions to simplify the model from reality so that the model is tractable. But at the same time, these simplifications may affect the clear view on the source of inflation cost and affect the way to measure the cost of inflation. This book analyzes the welfare cost of inflation in a general equilibrium framework that takes into account more realistic factors in the real world, a framework with more generalized model settings of money demand side and money supply side. On the money demand side, interest-bearing deposits are introduced by applying the monetary aggregation theory; on the supply side, a banking sector is established to produce interest-bearing deposits. The research should be useful for central bankers and researchers who are conducting research on the policy of central banks, and should benefit economist, econometricians, and anyone else who are interested in general equilibrium model or nonlinear threshold estimation.
Author: Mr.Howell H. Zee
Publisher: International Monetary Fund
ISBN: 1451853440
Category : Business & Economics
Languages : en
Pages : 22
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Book Description
This paper provides general equilibrium estimates of the steady-state welfare gains of lowering inflation from a low level to close to price stability, using an overlapping-generations growth model. Money demand is modeled on the basis that real money balances are a factor of production. Assuming a standard Fisher equation modified by the presence of an income tax, it is found that inflation unambiguously reduces capital intensity, drives up the before-tax real rate of return to capital, and unambiguously imposes a life-time welfare cost. This welfare cost is, however, quantitatively very modest (under 0.2 percent of GDP annually) within reasonable ranges of all parameter values.
Author: Michael Dotsey
Publisher:
ISBN:
Category :
Languages : en
Pages : 56
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Book Description
Author: Mário Henrique Simonsen
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 58
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Book Description
Author: Luca Benati
Publisher:
ISBN:
Category :
Languages : en
Pages :
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