How Inside Money Makes Inflation Costly For Most (but Gainful For Some)

William Oliver Coleman ()

ANUCBE School of Economics Working Papers from Australian National University, College of Business and Economics, School of Economics

Abstract: It is argued that inflation creates private incentives for (socially costly) inside money to supplant (socially costless) outside money. Consequently, the familiar 'shoe leather cost' of inflation, that operates through a reduced demand for money under inflation, is supplemented by a separate social cost of inflation that operates through an increased supply of (inside) money under inflation. It is further argued that allowance of the costliness of an inflation-induced expansion of inside money changes the character of the distribution of the costs of inflation. Certain suppliers of inside money may experience a net gain from an inflation. The upshot is that inflation is no longer necessarily a 'common enemy', but may be welcomed by some economic interests.

JEL-codes: E42 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007-12
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