Rebalancing Frequency and the Welfare Cost of Inflation

Andre Silva ()

American Economic Journal: Macroeconomics, 2012, vol. 4, issue 2, 153-83

Abstract: Cash-in-advance models usually require agents to reallocate money and bonds in fixed periods. Every month or quarter, for example. I show that fixed periods underestimate the welfare cost of inflation. I use a model in which agents choose how often they exchange bonds for money. In the benchmark specification, the welfare cost of 10 percent instead of 0 inflation increases from 0.1 percent of income with fixed periods to 1 percent with optimal periods. The results are robust to different preferences, to different compositions of income in bonds or money, and to the introduction of capital and labor. (JEL: E30, E40, E50)

JEL-codes: E30 E40 E50 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/mac.4.2.153
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.2.153 (application/pdf)
http://www.aeaweb.org/aej/mac/data/2009-0181_data.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Rebalancing frequency and the welfare cost of inflation (2014)
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: https://EconPapers.repec.org/RePEc:aea:aejmac:v:4:y:2012:i:2:p:153-83

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().