The welfare cost of inflation with banking time

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IEHAS Discussion Papers ; No. MT-DP - 2018/31

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: Neoclassical ; Price Level; Inflation; Deflation ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy
• Subject: Euler equation ; interest rates ; inflation ; banking ; money demand ; velocity ; price-theoretic ; marginal cost ; productivity shocks ; Great Recession

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gillman, Max
• Event: Veröffentlichung
• (who): Hungarian Academy of Sciences, Institute of Economics
• (where): Budapest
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/222044
• Last update: 10.03.2025, 11:41 AM CET