The Costs of Inflation in New Keynesian Models

Steve Ambler
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Steve Ambler: Bank of Canada, http://www.bankofcanada.ca/

Bank of Canada Review, 2007-2008, vol. 2007-2008, issue Winter, pages 7-16

Abstract: Ambler describes three new channels through which inflation affects economic welfare in New Keynesian models. These channels were absent from traditional analyses and may have caused researchers to underestimate the costs associated with variable inflation, even at relatively low levels of inflation. The article concludes with a preliminary assessment of the quantitative importance of the new channels and their significance for monetary policy.

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