Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias

Rubens Penha Cysne () and David Turchick

No 700, Economics Working Papers (Ensaios Economicos da EPGE) from Graduate School of Economics, Getulio Vargas Foundation (Brazil)

Abstract: Most estimates of the welfare costs of in ation are devised considering only noninterest-bearing assets, ignoring that since the 80 s technological innovations and new regu-lations have increased the liquidity of interest-bearing deposits. We investigate theresulting bias. Su¢ cient and necessary conditions on its sign are presented, alongwith closed-form expressions for its magnitude. Two examples dealing with bidimen-sional bilogarithmic money demands show that disregarding interest-bearing moniesmay lead to a non-negligible overestimation of the welfare costs of in ation. An intu-itive explanation is that such assets may partially make up for the decreased demandof noninterest-bearing assets due to higher in ation.

New Economics Papers: this item is included in nep-mon
Date: 2010-01-07
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://bibliotecadigital.fgv.br/dspace/bitstream/1 ... st_bias_jan_2010.pdf (application/pdf)

Related works:
Journal Article: Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fgv:epgewp:700

Access Statistics for this paper

More papers in Economics Working Papers (Ensaios Economicos da EPGE) from Graduate School of Economics, Getulio Vargas Foundation (Brazil)
Contact information at EDIRC.
Series data maintained by Núcleo de Computação da EPGE ().