Sectoral money demand and the great disinflation in the US

Alessandro Calza () and Andrea Zaghini
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Alessandro Calza: European Central Bank

No 785, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Estimates of the welfare costs of inflation based on Bailey's (1956) methodology are typically computed on the basis of aggregate money demand models. Yet, the behavior of money demand is likely to vary across sectors. As a result, the impact on welfare of changes in the inflation regime may differ between households and firms. We specifically investigate the sectoral welfare implications of the shift from the Great Inflation to the present regime of low and stable inflation. In order to do so, we estimate different functional specifications of sectoral money demand models for US households and non-financial firms using flow of funds data covering four decades. We find that the benefits were significant for both households and firms.

Keywords: welfare cost of inflation; flow of funds data; demand for money (search for similar items in EconPapers)
JEL-codes: C22 E41 (search for similar items in EconPapers)
Date: 2011-01
New Economics Papers: this item is included in nep-cba, nep-cis, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Sectoral money demand and the great disinflation in the US (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_785_11

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