Deposit Spreads and the Welfare Cost of Inflation

Pablo Kurlat ()

No 211, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Since bank deposits and currency are substitutes and banks have monopoly power, higher nominal interest rates lead to higher deposit spreads. This raises the cost of transaction services, increases bank profits and attracts entry into the banking sector. Taking these effects into account, a one percentage point increase in inflation has a welfare cost of 0.086% of GDP, 6.9 times higher than traditional estimates.

Date: 2019
New Economics Papers: this item is included in nep-cba and nep-mon
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Related works:
Journal Article: Deposit spreads and the welfare cost of inflation (2019)
Working Paper: Deposit Spreads and the Welfare Cost of Inflation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:211

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