Inflation taxes and inflation subsidies: Explaining the twisted relationship between inflation and output

George T. McCandless
Additional contact information
George T. McCandless: Banco Central de la República Argentina, http://www.bcra.gov.ar/

Journal of Applied Economics, 2008, vol. 11, 237-258

Abstract: This paper studies the nature of monetary policy in a cash-in-advance model with indivisible labor and with financial intermediaries that provide loans for working capital. Monetary policy occurs through money injections either directly to families or to financial intermediaries. Injections to families produce an inflation tax while injections directly to financial intermediaries provide an inflation subsidy that improves output, consumption, and welfare. This model helps explain why monetary policy based on growth in monetary aggregates can have ambiguous output effects, why central bankers usually prefer interest rate rules to monetary aggregate rules, and why estimated money demand equations tend to be unstable.

Date: 2008
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ucema.edu.ar/publicaciones/download/volume11/mccandless.pdf (application/pdf)

Related works:
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:cem:jaecon:v:11:y:2008:n:2:p:237-258

Access Statistics for this article

Journal of Applied Economics is currently edited by Germán Coloma and Mariana Conte Grand and Jorge M. Streb

More articles in Journal of Applied Economics from Universidad del CEMA Contact information at EDIRC.
Bibliographic data for series maintained by Valeria Dowding ().