Bailey's measure of the welfare costs of inflation as a general-equilibrium measure

Rubens Cysne

No 790, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: Lucas (2000) has shown that Bailey’s formula for the welfare costs of inflation can be regarded as an approximation to the general-equilibrium measures that emerge from the Sidrauski and the shopping-time models. In this paper we show that Bailey’s measure can be exactly obtained in the Sidrauski general-equilibrium framework under the assumption of quasilinear preferences. The result, based on whether or not wealth effects are incorporated into the analysis, is also helpful in clarifying why Lucas’ measure derived from the Sidrauski model turns out to be an upper bound to Bailey’s. Two examples are used to illustrate the main conclusions.

Date: 2017
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Bailey's Measure of the Welfare Costs of Inflation as a General-Equilibrium Measure (2009)
Journal Article: Bailey's Measure of the Welfare Costs of Inflation as a General‐Equilibrium Measure (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:790

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