Welfare Cost of Inflation, when Credit Card Transaction Services Are Included among Monetary Services

William Barnett and Sohee Park
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Sohee Park: Department of Economics, Valparaiso University, Valparaiso, IN 46383, USA

No 202306, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: We investigate the welfare cost of anticipated inflation, when the volume of credit card transactions is included in measured monetary service flows. We use the credit-card-augmented Divisia monetary aggregates in a nonlinear dynamic stochastic general equilibrium (DSGE) New Keynesian model and calculate the welfare costs of inflation. The welfare costs of inflation with credit card services included are greater than without them in the New Keynesian DSGE model. Because of the complexity of the model’s dynamical structure, we are not aware of a simple explanation for the increased welfare sensitivity to inflation.

Keywords: Welfare Cost; Divisia; Credit-Card-Augmented Divisia; Monetary Aggregates; Money Demand; Inflation; nonlinear dynamics. (search for similar items in EconPapers)
JEL-codes: E31 E41 E51 E52 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-pay
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Journal Article: Welfare cost of inflation, when credit card transaction services are included among monetary services (2024)
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