Dynamic shoe-leather costs in a shopping-time model of money

Michael Pakko ()

No 1998-007, Working Papers from Federal Reserve Bank of St. Louis

Abstract: A general-equilibrium shopping-time model of money demand is used to obtain estimates of some dynamic costs of inflation under alternative monetary policy rules. After examining the welfare implications of steady-state inflation, dynamic welfare costs are evaluated for inflation-targeting and price-level targeting regimes in a stochastic setting in which agents are uncertain about the underlying inflation trend. The regimes are distinguished by the presence or absence of a unit root in the money supply and the price level. Uncertainty about the underlying inflation rate is introduced as a mechanism for modeling the role of policy credibility.

Keywords: Demand for money; Econometric models (search for similar items in EconPapers)
Date: 1998
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