Arbeitspapier
Welfare Costs of Inflation in a Dynamic Economy with Search Unemployment and Endogenous Growth
Recent work on money and endogenous growth finds modest welfare costs of inflation. Furthermore, high inflation reduces the growth rate. We present a monetary endogenous growth model with labor market frictions in the form of search unemployment which is calibrated for the US economy. Interestingly, both employment and the growth rate may even increase with the rate of inflation depending on the elasticity of labor supply. Considering the transition dynamics following a change in the monetary policy, the optimal quarterly inflation rate is found to amount to approximately 3.5% in the benchmark case. A reduction of the inflation rate from its optimal value to zero results in a welfare loss equal to 0.3% of total consumption.
- Language
-
Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 296
- Classification
-
Wirtschaft
- Subject
-
Welfare costs of inflation
money demand
search unemployment
endogenous growth
transistion dynamics
- Event
-
Geistige Schöpfung
- (who)
-
Heer, Burkhard
- Event
-
Veröffentlichung
- (who)
-
Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2000
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Heer, Burkhard
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2000
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